UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_____________________________
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of
Report:
(Date
of
earliest event reported)
February
24, 2006
____________________________
AEROGROW
INTERNATIONAL, INC.
(Exact
name of registrant as specified in charter)
Nevada
(State
or
other Jurisdiction of Incorporation or Organization)
|
(Commission
File Number)
|
|
(IRS
Employer Identification No.)
|
|
000-50888
|
900
28th Street, Suite 201
Boulder,
Colorado 80303
(Address
of Principal Executive Offices and zip code)
|
46-0510685
|
(303)
444-7755
(Registrant’s
telephone umber, including area code)
936A
Beachland Boulevard, Suite 13
Vero
Beach, FL 32963
(Former
Name or Former Address, if Changed Since Last Report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of registrant under any of the following
provisions:
[
]
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[
]
Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR
240.14a-12(b))
[
]
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
[
]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act
(17 CFR 240.13e-4(c))
Safe
Harbor Statement under the Private Securities Litigation Reform Act of
1995
Information
included in this Form 8-K may contain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). This information may
involve known and unknown risks, uncertainties and other factors which may
cause
the actual results, performance or achievements of AeroGrow International,
Inc.
(“AeroGrow”), including its predecessor, Wentworth I, Inc. (“Wentworth”), to be
materially different from future results, performance or achievements expressed
or implied by any forward-looking statements. Forward-looking statements, which
involve assumptions and describe future plans, strategies and expectations
of
AeroGrow, are generally identifiable by use of the words “may,” “will,”
“should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project”
or the negative of these words or other variations on these words or comparable
terminology. These forward-looking statements are based on assumptions that
may
be incorrect, and there can be no assurance that these projections included
in
these forward-looking statements will come to pass. Actual results of AeroGrow
could differ materially from those expressed or implied by the forward-looking
statements as a result of various factors. Except as required by applicable
laws, AeroGrow no obligation to update publicly any forward-looking statements
for any reason, even if new information becomes available or other events occur
in the future.
Item
1.01
Entry
into a Material Definitive Agreement.
On
February 24, 2006, AeroGrow International, Inc., a Nevada corporation
(“AeroGrow”) completed the sale of shares of its common stock and common stock
purchase warrants in a private placement transaction (the “Offering”). For a
description of the Offering, and the material agreements entered into in
connection therewith, please see “Offering” in Item 2.01 of this Current Report,
which discussion is incorporated herein by reference
Item
2.01
Completion
of Acquisition or Disposition of Assets.
Closing
of the Merger
Wentworth
I, Inc., a Delaware corporation (“Wentworth”), and AeroGrow International, Inc.,
a Nevada corporation (“AeroGrow”) entered into an Agreement and Plan of Merger
(the “Merger Agreement”) on January 12, 2006 which was consummated on February
24, 2006. Under the terms of the Merger Agreement, Wentworth merged with and
into AeroGrow, with AeroGrow being the surviving corporation (“Merger”). The
certificate of incorporation and by-laws of AeroGrow prior to the Merger will
continue to be those of the surviving company, and the surviving company will
be
governed by the corporate law of the State of Nevada.
Prior
to
the Merger, Wentworth was a shell company with nominal assets and operations.
Its sole business purpose was identify, evaluate and complete a business
combination with an operating company. Prior to the Merger, Wentworth was a
reporting company under Section 12(g) of the Securities Exchange Act of 1934,
as
amended (“Exchange Act”) and was current in its reporting under the Exchange
Act.
As
a
result of the Merger, AeroGrow became a “successor issuer” to Wentworth within
the meaning of Rule 12(g)-3 under the Exchange Act. As a “successor issuer”
AeroGrow is now a Section 12(g) reporting company under the Exchange Act. As
a
result, the shares of common stock of AeroGrow are now registered securities
under Section 12(g) of the Exchange Act. Further, as a result of the Merger,
AeroGrow is no longer a shell company.
In
the
Merger each of the Wentworth’s 3,750,000 shares of outstanding common stock
(“Wentworth common stock”) was converted into the right to receive 0.154703
shares of AeroGrow common stock (“Exchange Ratio”) resulting in the issuance of
580,136 shares of AeroGrow’s common stock to the Wentworth stockholders
representing 6.5% of the issued and outstanding common stock of AeroGrow
immediately after the Merger, the Offering and the Note Conversion (as defined
below).
Each
share of AeroGrow common stock issued to the Wentworth’s stockholders in
connection with the Merger is restricted stock, and the holder thereof may
not
sell, transfer or otherwise dispose of such shares without registration under
the Securities Act of 1933, as amended (“Securities Act”) or an available
exemption therefrom. No registration statement covering these securities has
been filed with the SEC or with any state securities commission. The Merger
Agreement, however, contains piggy-back registration rights provisions that
allow each Wentworth stockholder to include their shares in any registration
statement filed for the public offering or resale of its securities in the
future, subject to the conditions set forth in the Merger Agreement. As part
of
the Offering, AeroGrow agreed to register for resale the shares of AeroGrow’s
common stock issued to Investors in the Offering (together with the shares
of
AeroGrow’s common stock underlying the Warrants issued in the Offering) on a
registration statement to be filed with the SEC. In the event such registration
statement is filed, the AeroGrow common stock issued to the Wentworth
stockholders in connection with the Merger will be included on such registration
statement. There can be no assurance that the shares of AeroGrow’s common stock
received by the Wentworth’s stockholders in connection with the Merger will
become registered under the Securities Act.
As
a
condition of the closing of the Merger Agreement, Keating Reverse Merger Fund,
LLC (“KRM Fund”), the current majority stockholder of Wentworth, will enter into
a lock up agreement under which it will be prohibited from selling or otherwise
transferring: (i) any of its shares of AeroGrow’s common stock for a period of
twelve months (12) months following the effective date of the Registration
Statement (“Initial Lock Up Period”), and (ii) fifty percent (50%) of its shares
of AeroGrow’s common stock after the expiration of Initial Lock Up Period until
the date which is eighteen (18) months after the effective date of the
Registration Statement. Immediately after the closing of the Merger, KRM Fund
will own 309,406 shares of AeroGrow’s common stock (“KRM Shares”) representing
3.5% of the issued and outstanding common stock of AeroGrow immediately after
the Merger, the Offering and the Note Conversion. Approximately 87,407 shares
of
AeroGrow’s common stock held by Keating Investments, LLC (“Keating
Investments”), the managing member of KRM Fund and the 90% owner of Keating
Securities, LLC, will be subject to lock up restrictions similar to those that
apply to the KRM Shares. The foregoing lock up restrictions may be released
by
the mutual agreement of AeroGrow and Keating Securities, LLC (“Keating
Securities”), the exclusive placement agent for the Offering.
Further,
for a two year period following the Closing, KRM Fund shall the right to send
a
representative to observe each meeting or to participate in telephone meetings
of AeroGrow’s board of directors.
In
connection with the Merger, Wentworth engaged Keating Securities, an affiliate
of Keating Investments to act as a financial advisor for Wentworth in connection
with the Merger. At the closing of the Merger, Keating Securities was paid
an
advisory fee of $350,000.
After
the
closing of the Merger, AeroGrow has agreed that, unless it has the consent
of
KRM Fund, it will not issue any securities for one year to its officers and
directors or 10% or greater stockholders, consultants, service providers or
other parties, except for issuances with respect to outstanding options,
warrants and convertible securities and pursuant to existing obligations, grants
pursuant to stock option and similar plans approved by the board and
stockholders, capital raising requirements approved by the board, or third
party, arms-length transactions. AeroGrow will also be obligated to: (i) remain
a 12(g) reporting company and comply with the reporting requirements under
the
Exchange Act, (ii) within forty-five days following the closing of the Merger,
AeroGrow’s board of directors shall satisfy the independence, audit and
compensation committee and other corporate governance requirements under the
Sarbanes-Oxley Act of 2002 (the “SOX Act”), the rules and regulations
promulgated by the SEC, and the requirements of either Nasdaq or American Stock
Exchange (“AMEX”) as selected by AeroGrow, whether or not AeroGrow’s common
stock is listed or quoted, or qualifies for listing or quotation, on Nasdaq
or
AMEX, (iii) use its commercially reasonable efforts to obtain and maintain
a
quotation of its shares of AeroGrow common stock on the OTC BB or Nasdaq, and
(iv) within 30 days following the Closing, procure key man life insurance
policies on certain officers of AeroGrow.
AeroGrow
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”). However, 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.
The
Merger, for accounting and financial reporting purposes, will be accounted
as an
acquisition of Wentworth by AeroGrow. As such, AeroGrow will be the accounting
acquirer in the Merger, and the historical financial statements of AeroGrow
will
be the financial statements for AeroGrow following the Merger.
Under
the
Delaware General Corporation Law (“DGCL”), the Wentworth stockholders have
appraisal rights. Any holder of shares of the Wentworth common stock who did
not
vote in favor of the Merger Agreement and the Merger will have the right to
dissent from the merger transaction and to seek an appraisal of and to be paid
the fair value (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) for his shares of the Wentworth
common stock, determined by a court and paid to the stockholder in cash,
together with a fair rate of interest, if any, provided that the stockholder
fully complies with the provisions of Section 262 of the DGCL. On January 12,
2006, four Wentworth stockholders who, in the aggregate, are the record owners
of 3,558,000 shares of Wentworth’s common stock, representing approximately
94.9% of the outstanding voting securities of Wentworth, executed and delivered
to Wentworth a written consent authorizing and approving the Merger. As such,
only holders of 192,000 shares of Wentworth’s common stock are able to exercise
dissenter’s rights.
Completion
of the Offering
As
a
condition to the Merger, AeroGrow conducted a private placement offering of
its
common stock and common stock purchase warrants (“Warrants”) to institutional
investors and other high net worth individuals (“Investors”) on a best efforts
$5,000,000 minimum, $12,000,000 maximum basis (“Offering”). The Offering was a
condition to the Merger, and the Merger was contingent on the
Offering.
AeroGrow
received gross proceeds of $10,000,000 in the Offering. Pursuant to Subscription
Agreements entered into with these Investors, AeroGrow sold 2,000,000 shares
of
its common stock and warrants to purchase 2,000,000 shares of its common stock.
Each Unit in the Offering consisted of one share of common stock and a five-year
warrant to purchase one share of common stock at an exercise price of $6.25
per
share. The price per Unit in the Offering was $5.00. Immediately after the
closing of the Offering, the Investors will own 2,000,000 shares of AeroGrow’s
common stock representing 22.4% of the issued and outstanding common stock
of
AeroGrow immediately after the Merger, the Offering and the Note Conversion.
AeroGrow is required to register the shares of its common stock issued in the
Offering (as well as the shares of common stock underlying the Warrants) with
the Securities and Exchange Commission (“SEC”) for resale by the Investors.
After commissions, expenses and the reverse merger fee payable to Keating
Securities, AeroGrow received net proceeds of $8,321,252 in the Offering.
Keating
Securities was the exclusive placement agent for the Offering. For their
services as placement agent, AeroGrow paid Keating Securities a fee equal to
10%, or $1,000,000, of the gross proceeds from the Offering. AeroGrow also
paid
Keating Securities a non-accountable expense allowance equal to 3%, or
approximately $300,000, of the gross proceeds from the Offering. In addition,
AeroGrow issued to Keating Securities and its designees five-year warrants
to
purchase an aggregate of 200,000 shares of its common stock at an exercise
price
of $6.25 per share (“Agent Warrants”). The warrants are fully vested and may be
exercised on a cashless or net issuance basis.
In
connection with the Offering, AeroGrow granted registration rights to the
Investors and the holders of the Agent Warrants. AeroGrow agreed to register
the
resale of the common stock issued to Investors in the Offering, the common
stock
issuable to each Investor pursuant to the Warrants, and the common stock
underlying the Agent Warrants. If AeroGrow does not register for resale the
common shares within 150 days of the closing date, then AeroGrow must pay each
of the Investors 1% of the Unit purchase price paid by such Investor for each
month thereafter that the Investor cannot publicly sell the shares of common
stock.
In
addition to the securities sold in the Offering, AeroGrow has received executed
subscription agreements for the sale of an additional 153,000 shares of common
stock and warrants to purchase 153,000 shares of common stock, all on the same
terms as the securities in sold in the Offering. AeroGrow anticipates receiving
approximately $665,550 in additional net proceeds from the sale of these
securities, after payment to Keating Securities of $99,450 in commissions and
the agent’s expense allowance. AeroGrow will also issue to Keating Securities
additional Agent Warrants to purchase 15,300 shares of common stock. All the
common stock issued and to be issued will have registration rights as provided
the Investors and Keating Securities in the Offering. The disclosure in this
Form 8-K in respect of outstanding shares of common stock and shares of common
stock to be issued under outstanding securities does not take into account
the
securities to be issued under the above mention subscription
agreements.
Copies
of
the form of Subscription Agreement, Placement Agreement, Form of Common Stock
Purchase Warrant, and Form of Agent Warrant are attached to this Current Report
on Form 8-K.
The
issuance of shares of AeroGrow’s common stock and the warrants to the Investors
in the Offering were completed pursuant to an exemption from registration
contained in Regulations D and S, only to accredited investors. The shares
of
AeroGrow’s common stock, the warrants and the shares of common stock underlying
the warrants may not be offered or sold in the United States unless they are
registered under the Securities Act, or an exemption from the registration
requirements of the Securities Act is available. No registration statement
covering these securities has been filed with the SEC or with any state
securities commission in respect of the Offering.
Modification
of Convertible Notes
In
connection with the Merger, AeroGrow sought to modify the terms of certain
outstanding convertible notes issued in 2005 with an outstanding principal
balance of $3,000,000, originally due June 30, 2006 (“Convertible Notes”). The
note holders of this debt were offered the opportunity to convert the principal
and interest at a reduced conversion rate, extend the maturity for a lesser
reduced conversion rate than immediate conversion or maintain the current terms
unchanged.
Holders
of Convertible Notes representing $2,130,000 in principal amount converted
their
notes into AeroGrow common stock at a conversion price of $3.00 per share,
a
reduction from the original conversion price of $4.00 per share. Accordingly,
at
the closing of the Merger and Offering, AeroGrow issued 710,009 shares of its
common stock (rounded up for fractional shares) to converting note holders
(“Note Conversion”). The converting note holders also were issued, pursuant to
the terms of the note offering, additional five-year warrants to purchase
426,000 shares of AeroGrow’s common stock at an exercise price of $6.00 per
share. Each share of AeroGrow common stock and each warrant issued to the
converting note holders will be restricted securities, and the holder thereof
may not sell, transfer or otherwise dispose of such securities without
registration under the Securities Act or an available exemption therefrom.
AeroGrow has agreed to register for resale the shares of AeroGrow’s common stock
issued to converting note holders (together with the shares of AeroGrow’s common
stock underlying the warrants issued to the note holders in connection with
the
original note issuance and upon the note conversion) on a registration statement
to be filed with the SEC.
Holders
of Convertible Notes representing $840,000 in principal amount have agreed
to
extend the maturity under their notes from June 30, 2006 to December 31, 2006
in
exchange for a reduction in their conversion price from $4.00 per share to
$3.50
per share.
The
remaining holders of Convertible Notes, representing $30,000 in principal
amount, have not elected to convert or extend the maturity of their notes and
will be able to demand payment in cash on June 30, 2006.
For
those
holders of Convertible Notes who elected to convert or extend the maturity
of
their notes as described above, (i) AeroGrow eliminated the current 180 day
lock-up provisions on the shares of common stock underlying the Convertible
Notes and related warrants; (ii) AeroGrow eliminated the redemption provisions
of the $5.00 warrants issued to holders at the time of the issuance of the
notes; and (iii) the holders of the Convertible Note waived any registration
penalties that they may have in connection with any late filing or effectiveness
under the registration rights provisions of their original subscription for
the
notes
.
Outstanding
Securities After the Merger
As
of
February 24, 2006, the closing date of the Merger and the Offering (“Closing
Date”), AeroGrow’s outstanding common stock, options, warrants and convertible
securities (after giving effect to the Merger, the Offering and the Note
Conversion) are as follows:
|
·
|
8,930,885
shares of AeroGrow common stock, which includes 2,000,000 shares
of common
stock issued to Investors in the Offering, 580,136 shares issued
and
issuable to the former stockholders of Wentworth, and 710,009 shares
of
common stock issued to holders of Convertible Notes in the principal
amount of $2,130,000 who elected to convert their notes at $3.00
per
share;
|
|
·
|
2,000,000
shares of Common stock issuable upon exercise of the Warrants sold
to
Investors in the Offering at an exercise price of
$6.25;
|
|
·
|
240,006
shares of common stock issuable upon conversion of Convertible Notes
(rounded up for fractional shares) in the principal amount of $840,000
at
a conversion price of $3.50 by holders who elected to extend the
maturity
of their notes to December 31,
2006;
|
|
·
|
7,500
shares of common stock issuable upon conversion of Convertible Notes
in
the principal amount of $30,000 at a conversion price of $4.00 by
holders
who did not elected to extend the maturity of their notes beyond
June 30,
2006;
|
|
·
|
600,000
shares of common stock issuable upon exercise of outstanding warrants
held
by the initial holders of the Convertible Notes with an exercise
price of
$5.00 per share, of which 6,000 warrants held by those not electing
to
extend the maturity of their Convertible Notes to December 31, 2006
are
redeemable under specified circumstances;
|
|
·
|
426,000
shares of common stock issuable upon exercise of warrants, at an
exercise
price of $6.00 per share, that were issued to holders which elected
to
convert notes in the principal amount of
$2,130,000;
|
|
·
|
174,000
shares of common stock issuable upon the exercise of warrants to
be issued
upon conversion of Convertible Notes in the principal amount of $870,000
at an exercise price of $6.00 per
share;
|
|
·
|
60,000
shares of common stock issuable upon exercise of outstanding warrants
issued to Keating Securities and its designees with an exercise price
of
$6.00 per share in connection with the note
offering;
|
|
·
|
200,000
shares of common stock issuable upon exercise of outstanding warrants
issued to Keating Securities and its designees with an exercise price
of
$6.25 per share in connection with the
Offering;
|
|
·
|
892,858
shares of common stock issuable upon exercise of outstanding warrants
at
exercise prices ranging from $2.50 to $15.00 per share; and
|
|
·
|
233,270
shares of common stock issuable upon exercise of outstanding options
at an
exercise price ranging from $0.005 to $5.00 per share (“Stock
Options”).
|
Based
on
the foregoing, AeroGrow has 13,764,519 shares of common stock outstanding on
a
fully diluted basis. In addition, as of January 31, 2006, AeroGrow also has
commitments to issue up to an aggregate of 38,204 shares of AeroGrow common
stock to an infomercial production firm and a public relations firm (“Equity
Commitments”).
Lock
Up Restrictions
Stockholders
of Wentworth holding an aggregate of 396,813 shares of common stock entered
into
a lock up agreement under which they will be prohibited from selling or
otherwise transferring: (i) any of their shares of common stock for a period
of
twelve months (12) months following the effective date of the Registration
Statement (“Initial Lock Up Period”), and (ii) fifty percent (50%) of its shares
of common stock after the expiration of Initial Lock Up Period until the date
which is eighteen (18) months after the effective date of the Registration
Statement.
Further,
as a condition of the closing of the Merger Agreement, 4,463,483 shares of
AeroGrow’s common stock held by existing AeroGrow stockholders (including all
shares of AeroGrow held by AeroGrow’s current officers and directors discussed
elsewhere in this Report) and 927,406 shares of common stock underlying
AeroGrow’s existing warrants and options outstanding will be subject to a lock
up agreement with the same transfer restrictions as set forth above and
applicable to the stockholders of Wentworth.
Immediately
after the closing of the Merger and the Offering, the following shares of common
stock (or shares of common stock underlying warrants and options) will not
be
subject to any lock up agreement restrictions:
|
·
|
Approximately
544,228 shares of common stock held by investors in AeroGrow’s Colorado
intrastate offering (“Colorado Offering Shares”). The Colorado Offering
Shares will be freely tradable without restriction and will represent
AeroGrow’s “float” following the
Merger.
|
|
·
|
633,029 shares
of outstanding common stock held by existing AeroGrow stockholders.
These
shares of common stock may be freely tradable without restriction
following the Offering depending on how long the holders thereof
have held
these shares in accordance with the requirements of Rules 144 and
701.
|
|
·
|
155,000 shares
of common stock underlying existing warrants, and 43,722 shares of
common stock underlying outstanding options issued to employees,
consultants and vendors. Upon exercise of these warrants by the holders
thereof, the shares will be restricted shares subject to the restrictions
on transfer imposed under Rule 144 and Rule 701 promulgated under
the
Securities Act, which have different holding periods and volume
limitations depending on the status of the holder and the time period
that
the holder has held the securities.
|
|
·
|
None
of the shares of common stock issued in the Offering, issued upon
conversion of the Convertible Notes, underlying the warrants issued
in
this Offering (including Agent Warrants), underlying the Convertible
Notes, or underlying the warrants issued or to be issued to Convertible
Note holders (including placement agent warrants) are subject to
lock up
restrictions.
|
|
·
|
183,323
shares of common stock held by Wentworth stockholders will not be
subject
to lock up restrictions.
|
Item
3.02 Unregistered Sales of Equity Securities
Reference
is made to the disclosure set forth under Items 2.01 and 8.01 of this Current
Report on Form 8-K, which disclosure is incorporated herein by
reference.
Item
3.03 Material Modification to Rights of Security Holders
Reference
is made to the disclosure set forth under Items 2.01 and 8.01 of this Current
Report on Form 8-K, which disclosure is incorporated herein by
reference.
The
holders of the Wentworth common stock, by the terms of the Merger Agreement,
exchanged their shares of Wentworth common stock for shares of common stock
of
AeroGrow. The common stock of AeroGrow will be governed by the terms of the
laws
of the State of Nevada, the state of incorporation of AeroGrow, and the terms
of
the certificate of incorporation and by-laws of AeroGrow. Copies of the
certificate of incorporation and the by-laws of AeroGrow are filed with this
Current Report on Form 8-K. Also, see the Description of Securities under Item
8.01.
Item
5.01
Changes
in Control of Registrant.
Reference
is made to the disclosure set forth under Items 2.01 and 5.02 of this Current
Report on Form 8-K, which disclosure is incorporated herein by
reference.
Item
5.02
Departure
of Directors or Principal Officers; Election of Directors; Appointment of
Principal Officers.
Reference
is made to the disclosure set forth under Item 2.01 of this Current Report
on
Form 8-K, which disclosure is incorporated herein by reference.
Management
Effective
as of the Closing, pursuant to the terms of the Merger, the corporate existence
of Wentworth ceased and the following persons were the directors and officers
of
AeroGrow as of the time of the Merger and will continue in those positions
after
the Merger. Each of the directors of AeroGrow was elected to their positions
at
an annual meeting of the stockholders of AeroGrow held February 23, 2006.
Immediately thereafter, the newly elected directors held a meeting and appointed
the officers of AeroGrow and took other action to establish the corporate
governance of the company.
|
Name
|
Age
|
Position
with AeroGrow
|
Serving
as a
Director
Since
|
|
W.
Michael Bissonnette
|
57
|
Chief
Executive Officer, President and Director
|
2002
|
|
Richard
A. Kranitz
|
61
|
Director
|
2002
|
|
Wayne
Harding
|
50
|
Director
|
2005
|
|
Jack
J. Walker
|
71
|
Director
|
2006
|
|
Kenneth
Leung
|
61
|
Director
|
2006
|
W.
Michael Bissonnette
is our
founding shareholder and has served as chief executive officer, president and
a
director of AeroGrow since July 2002. Concurrently, he has served as chief
executive officer, president and a director of our former parent company, Mentor
Capital Consultants, Inc. since March 2000. Mentor Capital currently has no
active operating business. From 1989 to 1994, he was the founder, chief
executive officer, president and a director of Voice Powered Technology
International, Inc., an international consumer electronics company. From 1977
to
1989, Mr. Bissonnette was the founder, chief executive officer and president
of
Knight Protective Industries, Inc., an international consumer security products
company. Prior to 1977, he was founder, chief executive officer and president
of
Shagrila Carpets, Inc., a multi-store retailer of commercial and home carpeting.
Both Voice Powered Technology and Knight Protective Industries specialized
in
the funding, development and marketing of technology-based consumer
products.
Richard
A. Kranitz
has been
a director of AeroGrow since July 2002. He has also served as a director of
Mentor Capital since March 2000. Mr. Kranitz has been an attorney in private
practice since 1970 emphasizing securities, banking and business law. From
1990
to the present he has been an attorney in Kranitz & Philipp in Grafton,
Wisconsin. Previously, following the death of a partner in 1976, he formed
the
Law Offices of Richard A. Kranitz. From 1982 to 1983 he also was a member of
Fretty & Kranitz and from 1977 to 1978 he was also a member of Habush,
Gillick, Habush, Davis, Murphy, Kraemer & Kranitz. He was a member of McKay,
Martin & Kranitz from 1973 to 1976, and was employed by Reinhart, Boerner,
Van Deuren, Norris & Reiselbach, s.c. from 1970 to 1973. Mr. Kranitz served
as Law Clerk to the Honorable Myron L. Gordon in the U.S. District Court (E.D.
Wisconsin) from 1969 to 1970. Mr. Kranitz has served as a director of the
Grafton State Bank from 1990 to present. He served as a venture capital
consultant to, and director of, various companies and he has served at various
times as a director of various professional, civic or charitable
organizations.
Wayne
Harding
has been
a director since October 2005. He has served as vice president business
development of Rivet Software since December 2004. From August 2002 to December
2004 Mr. Harding was owner and President of Wayne Harding & Company CPAs and
from 2000 until August 2002 he was director-business development of CPA2Biz.
He
provided consulting services for AeroGrow from December 2003 through March
2004.
Mr. Harding is a certified public accountant licensed in Colorado. He is past
president of the Colorado Society of CPAs and past member of the Governing
Council for the American Institute of CPAs.
Jack
J. Walker
has
been
a director since the February 23, 2006, annual meeting of shareholders. He
has
served as president of English & Continental Properties, Inc., a real estate
investment and development company, since 1980. From 1976 to 1985, Mr. Walker
was president of March Trade & Finance, Inc., a private investment company.
Previously, Mr. Walker acquired control of Charles Spreckly Industries, Town
& Commercial Properties and Associated Development Holdings. In 1961 he
started English & Continental Property Company, and became joint Managing
Director of this commercial development company. Mr. Walker began his career
as
a lawyer in London, England specializing in real estate, financing,
international tax and corporate affairs. Mr. Walker has served as a director
of
Megafoods Stores Inc. He also serves as a venture capital consultant to
companies on financial and pre-IPO strategies. In addition, he created the
Walker Foundation for Charitable Activities and he has served at various times
as a director of various professional, civic and charitable
organizations.
Kenneth
Leung
has been
a director since the February 23, 2006, annual meeting of shareholders. From
1995 to the present he has been Managing Director of Investment
Banking-Environmental and the Chief Investment Officer of the Environmental
Opportunities Fund at Sanders Morris Harris. Previously Mr. Leung served as
Managing Director Investment Banking& Research-Environmental at Smith Barney
from 1978 to 1994. He was Vice President Investment Banking &
Research-Environmental with F. Eberstadt & Co. from 1974 to 1978.
Previously, he was an Assistant Treasurer Investment Research-Environmental
with
Chemical Bank from 1968-1974. Mr. Leung serves on the boards of American Ecology
and SystemOne Technologies. He has served at various times as a director of
various civic and charitable organizations.
All
directors are elected to annual terms by the holders of common stock. All
directors hold office until the next annual meeting of shareholders and the
election and qualification of their successors. Outside directors receive no
fee
for meetings attended but are reimbursed for expenses. Officers are elected
annually by the board of directors and serve at the discretion of the
Board.
Description
of Other Officers of the Corporation
All
of
the officers of the corporation are appointed by the board of directors to
serve
until the annual meeting of the directors and the election and qualification
of
their successors. The officers of AeroGrow not identified above who were elected
to their positions at an annual meeting of the directors of AeroGrow held
February 23, 2006.are as follows:
Mitchell
Rubin
was
elected chief financial officer and treasurer of AeroGrow on February 23, 2006.
Prior to joining AeroGrow, from January 2003 through February 2006, Mr. Rubin
was an independent financial consultant. From July 1999 to December 2002, Mr.
Rubin was the Chief Financial Officer of Web-Ideals LLC, a privately owned
application service provider that offered a web-based application for managing
direct to consumer commerce. From January 1994 to June 1999, Mr. Rubin held
various positions including Chief Financial Officer, Chief Executive Officer
and
director with Voice Powered Technology International Inc., a publicly held
developer and manufacturer of consumer electronic products. From July 1991
to
December 1993, Mr. Rubin served as Executive Vice President and Chief Operating
Officer of Regal Group, Inc., a television direct-response company. Mr. Rubin
began his career as a certified public accountant.
Randy
Seffren
has been
chief marketing officer of AeroGrow since April 2004 on a consulting basis.
Mr.
Seffren has 25 years of senior executive level marketing experience with major
advertising and direct response agencies. From 1999 to 2004, Mr. Seffren headed
the marketing efforts for healthcare communications companies, including Orbis
Broadcast Group and MedEd Architects. From 1993 to 1999, he was executive vice
president with Reebok Home Fitness/DP Fitness/Body By Jake Fitness/Kent &
Spiegel Direct. From 1989 to 1993, Mr. Seffren led the marketing, communications
and product development efforts as director of marketing communications with
Life Fitness, a fitness equipment company. In these positions Mr. Seffren
introduced numerous consumer products on a global scale from product development
through marketing and communications. He leveraged the brand image and direct
response marketing of these products through distribution into specialty and
mass retail channels.
There
are
no family relationships (whether by blood, marriage or adoption) between or
among the AeroGrow directors or executive officers or the
directors.
The
business addresses of the directors are: W. Michael Bissonnette, AeroGrow
International, Inc., 900 28th Street, Suite 201, Boulder, Colorado 80303;
Richard A. Kranitz, Kranitz & Philipp, 1238 12th Avenue, Grafton, Wisconsin
53024; Wayne Harding, Rivet Software, 6501 E. Belleview, Suite 240, Englewood,
Colorado 80111; Jack J. Walker, English & Continental Properties, Inc., 5600
Arapahoe Road, Suite 205, Boulder, Colorado 80303; Kenneth Leung, Sanders Morris
Harris, 527 Madison Avenue, New York, New York 10022.
Board
Committees, Meetings and Compensation
Committees
of the Board
Our
full
board of directors considers all major decisions. However, we have established
two standing committees so that some matters can be addressed in more depth
than
may be possible in a full board meeting: an audit committee and a governance,
compensation and nominating committee. These two committees each operate under
a
written charter. The board has affirmatively determined that Mr. Harding is
independent as defined by applicable securities law and corporate governance
guidelines. Following is a description of both of these committees.
Not
later
than April 5, 2006, AeroGrow will elect between the corporate governance
requirements of NASDQ or the AMEX and fulfill its compliance with such rules.
This obligation is pursuant to the Merger Agreement.
Audit
Committee.
The
current members of our audit committee are Mr. Harding (chairman), Mr. Jack
Walker and Mr. Kenneth Leung. Mr. Harding is considered a financial expert
and
Messrs Walker and Leung are considered financially literate under the rules
of
the Securities and Exchange Commission for audit committee members. As we add
additional independent members to our board of directors as required by
applicable securities law or exchange listing guidelines when applicable, such
independent directors may be appointed to our audit committee or the membership
of the committee may be changed. This committee’s charter provides that the
committee shall:
|
·
|
oversee
our accounting and financial reporting processes and audits of our
financial statements,
|
|
·
|
assist
the Board with oversight of the integrity of our financial statements,
our
compliance with legal and regulatory requirements, our independent
auditors’ qualifications and independence and the performance of our
independent auditors, and
|
|
·
|
provide
the Board with the results of its
monitoring.
|
Governance,
Compensation and Nominating Committee.
The
current members of our governance, compensation and nominating committee are
Mr. Harding (chairman) and Mr. Jack Walker and Mr. Kenneth Leung. Each of
these persons is an independent director. This committee’s charter provides that
the committee shall:
|
·
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recommend
to the Board our corporate governance
guidelines,
|
|
·
|
review
and recommend the nomination of Board members,
|
|
·
|
set
the compensation for our chief executive officer,
and
|
|
·
|
administer
the equity performance plans of
AeroGrow.
|
Meetings.
During
fiscal year ended December 31, 2005, the Board met fifteen times. Each director
attended all of the meetings held by the Board during the period that he served
as a director of AeroGrow.
Director
Compensation
In
2004
and 2005 each of AeroGrow’s directors received 2,000 shares of its common stock
for their service as directors. Mr. Bissonnette has agreed to forego any future
stock-based compensation for serving as a director of AeroGrow. AeroGrow does
not compensate directors for attending meetings but does reimburse them for
their out-of-pocket expenses for attending meetings.
Management
Compensation
The
following table provides information concerning compensation earned by
Mr. Bissonnette, our chief executive officer, Mr. Gutterman, our former
chief financial officer, and Mr. Seffren, our chief marketing officer during
2005, 2004 and 2003. No other executive officer of AeroGrow was paid in excess
of $100,000 in 2005.
|
Summary
Compensation Table Annual
|
|
|
|
Compensation
|
|
|
Name
and Principal Position
|
Year
|
Salary
|
Bonus
|
All
Other
Compensation
|
|
W.
Michael Bissonnette, CEO,
President
and Director(1)
|
2005
2004
2003
|
$156,954
134,428
123,046
|
$0
$0
$0
|
$10,000(2)
$10,000(2)
$2,500(2)
|
|
|
Randy
Seffren, CMO
|
2005
2004
|
$0
$0
|
$0
$0
|
$404,653(3)
$215,566(3)
|
|
|
Jerry
L. Gutterman, Former, CFO
|
2005
|
$0
|
$0
|
$277,005(4)
|
|
|
Mitchell
Rubin, CFO
|
2005
|
$0
|
$0
|
$29,937(5)
|
|
|
(1)
|
Mr.
Bissonnette also received perquisites and other personal benefits
totaling
$31,954 in 2005, $24,504 in 2004 and $22,566 in
2003.
|
|
(2)
|
Other
compensation reflects the value at the time of grant of shares of
our
common stock received by Mr. Bissonnette in each
year.
|
|
(3)
|
Other
compensation reflects consulting fees of $164,153 and $84,466 and
the
value at the time of grant of shares of our common stock received
by
Prometheus Communications Group, LLC of which Mr. Seffren is the
100%
owner and managing member, in 2005 and 2004,
respectively.
|
|
(4)
|
Other
compensation reflects consulting fees of $139,330 and the value at
the
time of grant of shares of our common stock received by Mr. Gutterman
in
2005.
|
|
(5)
|
Other
compensation reflects consulting fees of
$29,937.
|
Compensation
Plans
Amended
2003 Stock Option Plan.
On
January 3, 2003, our board of directors adopted a stock option plan for key
employees (including key employees who are directors), non-employee directors,
consultants and investors which provides that an aggregate of 400,000 shares
of
our common stock may be granted under the plan (“2003 Plan”). On December 31,
2005, there were options for 204,869 shares outstanding and the remaining
options of 195,131 were merged into the 2005 Equity Compensation Plan on August
22, 2005 and the 2003 plan no longer separately exists. Vesting schedules are
determined individually for each grant.
Administration
.
The
plan is administered by our Governance, Compensation and Nominating Committee,
and in the past was administered by the board. The plan provides that it may
be
administered by either the committee or board, and in its administration it
may:
|
·
|
determine
the date of grant, exercise price and other terms of
options,
|
|
·
|
establish
rules and regulations to administer the
plan,
|
|
·
|
amend,
suspend or discontinue the plan subject to applicable shareholder
approval,
|
|
·
|
interpret
the rules relating to the plan, and
|
|
·
|
otherwise
administer the plan.
|
Stock
Options.
The plan
provides that the committee may grant both incentive stock options, which can
result in potentially favorable tax treatment to the participant, and
non-qualified stock options. The committee determines the terms and vesting
provisions, including the exercise price. The maximum term of each option and
the times at which each option will be exercisable generally are fixed by the
committee, except that no option may have a term exceeding ten years. Shares
subject to options that expire or otherwise terminate remain available for
awards under the plan. Shares issued under the plan may be either newly issued
shares or shares which we have reacquired.
2005
Equity Compensation Plan.
In
August 2005 we adopted our 2005 Equity Compensation Plan (“2005 Plan”) to
promote the interests of AeroGrow and our shareholders by attracting, retaining
and motivating our key officers, employees, directors and consultants. A total
of 1,505,000 shares of our common stock may be granted under this plan pursuant
to stock options or awards of shares of restricted stock. As of December 31,
2005, 28,401 options and 236,796 shares of restricted stock had been granted
under this plan and 1,239,803 remain available for grant. Our 2003 stock option
plan was merged into this plan in August 2005, which modification was approved
by the stockholders in February 23, 2006, and now the 2003 Plan no longer
separately exists. The options for the 204,869 shares issued under the 2003
Plan
continue to be governed by their grant agreements but are administered under
the
2005 Plan. The 2005 Plan was approved by our stockholders at the annual meeting
of stockholders held February 23, 2006.
Shares
Available for Awards
.
Shares
subject to an award that are cancelled, expire unexercised, forfeited, settled
in cash or otherwise terminated remain available for awards under the plan.
Shares issued under the 2005 Plan may be either newly issued shares or shares
which we have reacquired. The plan imposes individual limitations on the amount
of certain awards in order to comply with Section 162(m) of the Internal Revenue
Code of 1986. Under these limitations no single participant may generally
receive awards in any calendar year that relate to more than $1 million.
Finally, awards may generally be adjusted to prevent dilution or enlargement
of
benefits when certain events occur such as a stock dividend, reorganization,
recapitalization, stock split, combination, merger or
consolidation.
Eligibility.
Our
employees, directors and consultants may be granted awards under the plan.
As of
December 31, 2005, approximately 57 individuals were eligible to
participate.
Administration
.
The
plan is administered by our Governance, Compensation and Nominating Committee.
Awards to directors serving on the committee are determined and administered
by
the full board of directors. The committee may:
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·
|
determine
the type and number of awards to be
granted,
|
|
·
|
determine
the exercise or purchase price, vesting periods and any performance
goals,
|
|
·
|
determine
and later amend the terms and conditions of any
award,
|
|
·
|
interpret
the rules relating to the plan, and
|
|
·
|
otherwise
administer the plan.
|
Stock
Options
.
The
committee may grant both incentive stock options, which can result in
potentially favorable tax treatment to the participant, and non-qualified stock
options. The committee determines the terms and individual vesting schedules
for
each grant including the exercise price which may not be less than the fair
market value of a share of common stock on the date of the grant.
Restricted
Shares.
The
committee may grant restricted shares of common stock. Restricted shares are
shares of common stock with transfer restrictions. These restrictions lapse
on
the basis of performance and/or continued employment as determined in advance
by
the committee. They may be forfeited by participants as specified by the
committee in the award agreement. A participant who has received a grant of
restricted shares will receive dividends and the right to vote those shares.
Restricted shares may not be transferred, encumbered or disposed of during
the
restricted period or until after the restrictive conditions are
met.
Other
Terms.
All
outstanding awards vest, become immediately exercisable or payable and have
all
restrictions lifted immediately when AeroGrow experiences a change in control.
The Board may amend or terminate the plan subject to applicable stockholder
approval. The committee may not amend the terms of previously granted options
to
reduce the exercise price or cancel options and grant substitute options with
a
lower exercise price than the cancelled options. The committee also may not
adversely affect the rights of any award holder without the award holder’s
consent.
Mr.
Gutterman was granted 69,429 stock options at an exercise price of $1.25 per
share stock options under the 2003 Plan. Mr. Rubin was granted 1,366 stock
options at an exercise price of $0.50 per share stock options under the 2003
Plan. They are the only executive officers who have been granted stock options
under that Plan.
Mr.
Bissonnette, Mr. Gutterman and Mr. Seffren were granted 2,000, 24,710 and 28,520
restricted shares of common stock, respectively, under the 2005 Plan. Mr. Rubin
was granted 2,402 stock options at an exercise price of $0.50 per share stock
options under the 2005 Plan.
Equity
Compensation Plan Information.
The
following table shows the total shares of common stock reserved for issuance
for
outstanding options granted under the 2003 Plan and the 2005 Plan as of December
31, 2005.
|
Plan
category
|
Number
of
securities
to be
issued
upon exercise
of
outstanding
options
|
Weighted
average
exercise
price
of
outstanding
options
|
Number
of
securities
remaining
available
for
issuance
under
our
Amended
2003
Stock
Option
Plan
|
Number
of securities
remaining
available
for
issuance under our
2005
Equity
Compensation
Plan
|
|
Equity
compensation plans not approved by stockholders
|
204,869
|
$2.13
|
0
|
N/A
|
|
Equity
compensation plans approved by stockholders
|
28,401
|
$3.81
|
NA
|
1,239,803
|
|
Total
|
233,270
|
$2.34
|
|
1,239,803
|
This
table does not reflect 86,436 and 358,008 shares of common stock issued through
December 31, 2005 and 2004, respectively, to employees and consultants as
compensation and not as part of a plan.
Employment
Contracts
AeroGrow
entered into employment agreements with W. Michael Bissonnette and Mitchell
Rubin following the closing of the Merger. The employment agreements are
attached to this Current Report ion Form 8-K and are hereby incorporated
by
reference.
The
employment agreement of Mr. Bissonnette provides that he will be employed
as the
chief executive officer of AeroGrow for an initial term of 24 months, renewable
automatically for successive one year terms. He will be paid a base salary
of
$225,000 and is eligible to receive a cash bonus equal to not less than 1.5%
of
EBITDA, pro rata for the fiscal year during which Mr. Bissonnette is employed,
payable 120 days after year end. Mr. Bissonnette will also be able to
participate in equity compensation plans as determined by the compensation
committee. Mr. Bissonnette will be reimbursed car and home office expenses
at
the rate of $2,500 per month and participate in regular employee benefit
plans
as provided by the company. If Mr. Bissonnette is terminated without cause
by
the Company or Mr. Bissonnette terminates upon a company breach, he will
be paid
his base salary, medical benefits and pro rata portion of the bonus for one
year. If he terminates his employment without cause, he will be paid his
salary
for one month. Mr. Bissonnette has agreed to regular confidentiality provisions
and agreed not to compete with AeroGrow in the area of aeroponics products
and
business for two years after the termination of employment. Any inventions,
including modifications, are assigned to the company by the terms of the
agreement.
The
employment agreement of Mr. Rubin provides that he will be employed as the
chief
financial officer of the company. He will devote his entire business time
to the
affairs of the company, provided that for the first four months of his
employment he may devote a limited amount of time to non-competitive business
activities during the work day in transition from his prior consulting business.
The initial term is two years and renewable for successive one year terms.
Mr.
Rubin shall receive base compensation of $200,000 per year and a bonus per
fiscal year of not less than 1.5% of EBITDA. In the event of termination
of the
agreement by AeroGrow without cause or breach by AeroGrow, Mr. Rubin shall
be
entitled to receive severance compensation equivalent to six months base
salary
and the pro rata bonus. The agreement also provides for medical, vacation
and
other benefits commensurate with the policies and programs as adopted by
AeroGrow for its senior executives. Further, the agreement provides for Mr.
Rubin to receive a grant of 125,000 options to purchase AeroGrow’s common stock
under AeroGrow’s 2005 Equity Compensation Plan at an exercise price of not
greater than $5.00. The options shall; (i) vest pursuant to terms no less
than a
minimum of 50% of the amount of the grant per each twelve month period from
the
date of grant; (ii) shall not expire in less than five (5) years from the
date
of grant; (iii) shall be subject to other standard terms and conditions under
the 2005 Equity Compensation Plan, and; (iv) shall have other terms and
conditions no less favorable than that granted to other senior executives
of the
Company. Mr. Rubin has agreed to regular confidentiality and inventions
assignment provisions and agreed not to compete with AeroGrow for two years
after the termination of employment.
Except
as
set forth above, all employees of AeroGrow are employed on “at will” employment
agreements.
Item
5.03 Amendments to Articles of Incorporation or Bylaws.
On
February 24, 2006, AeroGrow filed a Certificate of Amendment to the Certificate
of Incorporation to change the corporate name to “AeroGrow International, Inc.”
This was a corrective amendment to remove the space in the “AeroGrow” part of
the name.
Effective
as of the Closing, pursuant to the provisions of the bylaws of AeroGrow,
the
board of directors, by resolution, set the number of directors on the board
of
directors of AeroGrow to be five. At the annual meeting held February 23,
2006,
five persons were elected directors of AeroGrow.
Item
5.06 Change In Shell Company Status
Please
see the discussion of “Closing of the Merger” in Item 2.01 above, which
discussion is incorporated herein by reference.
Item
8.01 Other Events.
The
following is a description of AeroGrow’s business.
Overview
AeroGrow
was formed as a Nevada corporation on March 25, 2002. AeroGrow’s principal
business is researching, developing and marketing advanced indoor aeroponic
garden systems designed and priced to appeal to the gardening, cooking and
small
kitchen appliance, healthy eating and home and office décor markets worldwide.
Since formation, AeroGrow’s principal activities have consisted of product
research and development resulting in the filing of 14 patent applications
and 9
trademark applications, the development of two proprietary growing systems
and 6
proprietary seed kits, research into the markets for AeroGrow’s products and the
best channels through which to sell them, business planning and raising the
capital necessary to fund these activities.
AeroGrow’s
principal products are “kitchen garden” indoor growing systems and proprietary
seed kits that will allow consumers, with or without gardening experience,
to
easily grow cherry tomatoes, cilantro, chives, basil, dill, oregano, mint,
flowers, chili peppers and lettuce throughout the year. AeroGrow’s kitchen
garden systems are designed to be simple, consistently successful and
affordable. AeroGrow believes that its focus on the design and features of
its
kitchen garden systems will make them the first of their kind on the consumer
market. We reached this conclusion on he basis of standard means of market
research, including focus groups and potential customer interview techniques,
review of potentially competitive products offered at all ranges of
functionality and price, and testing of products that may be considered
competitive in function although not necessarily competitive in terms of
market
orientation.
AeroGrow
has filed thirteen patent applications in the United States and one
international patent application to protect its core inventions. These include
aeroponic technological advances described below as well as product, nutrient
and seed pod inventions designed to enhance plant growth. Many of AeroGrow’s
patent-pending companion technologies are based on its innovations in the
fields
of biology, plant physiology, chemistry and adaptive learning computer science.
In addition, AeroGrow has developed certain trade secrets which simplify,
combine and integrate its core technologies into its indoor kitchen garden
systems.
AeroGrow
believes that its inventions and combined technologies will allow almost
anyone,
from consumers who have no gardening experience to professional gardeners,
to
produce year-round harvests of cherry tomatoes, cilantro, chives, basil,
dill,
oregano, mint, flowers, chili peppers and lettuce provided in its seed kits
regardless of season, weather or lack of natural light. AeroGrow believes
that
its kitchen garden systems’ unique and attractive designs make them appropriate
for use in almost any location including kitchens, bathrooms, living areas
and
offices.
AeroGrow’s
basic kitchen garden system and its deluxe kitchen garden system are projected
to retail at prices ranging from $99 to $149 based on the channel of
distribution in which they are sold and the specific product features provided.
AeroGrow currently expects to market its deluxe kitchen garden system in
the
United States immediately following completion of the Merger and the Offering.
Hydroponic
Industry - Background and Opportunity
Hydroponics
is the science of growing plants in water instead of soil. Used commercially
worldwide, hydroponics is considered an advanced and often preferred crop
production method. Hydroponics is typically used inside greenhouses to give
growers the ability to better regulate and control nutrient delivery, light,
air, water, humidity, pests and temperature. Hydroponic growers benefit by
producing crops faster and enjoying higher crop yields per acre than traditional
soil-based growers.
Aeroponics
is derived from hydroponics and occurs when plant roots are suspended in
an air
chamber and bathed at regular intervals with nutrient solution. AeroGrow
believes that the aeroponics technology used in its kitchen garden systems
is a
technological advance over hydroponics because plant roots are suspended
in a
near-100% humidity, oxygen-rich air chamber and bathed in a nutrient-rich
solution.
AeroGrow
conducted informal market research to help determine the products to be created
and the market characteristics. AeroGrow conducted research with approximately
500 individuals who were located either by their signing up on the website
to
pre-order the basic product, agreed to be beta testers of the basic product,
came to preview meetings concerning the company and friends of employees
and
consultants that were asked to locate persons for market testing. The research
consisted of face to face and internet interviews/surveys with potential
consumers and standard focus group experiences. From some of the contacts,
AeroGrow obtained a 10 page questionnaire and in other instances the responses
were taped for later review. Persons from approximately 35 states responded
to
the surveys and focus groups. A professional market research consultant assisted
with the design, implementation and analysis of the focus groups, individual
interviews and surveys. From this research, it appears to AeroGrow that there
is
a potential, sizeable national market for its countertop soil-less kitchen
garden systems for use indoors in homes and offices. Until the development
of
AeroGrow’s kitchen garden systems, significant barriers have prevented
hydroponic or aeroponic technology from being incorporated into mainstream,
mass-marketed consumer products, including:
|
·
|
Consumers
generally lack the specialized knowledge required to select, set
up,
operate and maintain the various components for a typical hydroponic
or
aeroponic system, including growing trays, irrigation channels,
growing
media nutrient reservoirs and nutrient delivery systems consisting
of
electronic timers, pumps, motors, tubing and
nozzles.
|
|
·
|
Consumers
generally do not possess the specialized knowledge required to
select, set
up, operate and maintain the varied indoor lighting systems that
are
necessary to grow plants in the absence of adequate indoor natural
light.
|
|
·
|
Consumers
are required to properly mix and measure complex hydroponic nutrient
formulas which change depending on the plant variety and the stage
of
plant growth. In addition, consumers must deal with the problem
of
nutrient spoilage.
|
|
·
|
Federally-mandated
water quality reports show that the pH level of the water in many
large
cities is too high for hydroponic or aeroponic growing and requires
chemical treatments to lower the water pH level. Consumers generally
are
unaware of their water’s pH level or how to adjust the water to the proper
pH level for healthy plant growth.
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Current
garden systems generally require users to understand and have access
to
specialized monitoring equipment to measure water pH levels and
nutrient
concentration.
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AeroGrow
believes that these complexities have been accepted in existing hydroponic
market channels because its research has indicated that hydroponic manufacturers
have generally focused their product development and marketing efforts on
satisfying the needs of the commercial greenhouse and dedicated hobbyist
markets. AeroGrow’s research has indicated that the hydroponic growing equipment
currently available in these markets is bulky, expensive and comprised of
many
parts. These users are motivated to gain the specialized knowledge, equipment
and experience currently required to successfully grow plants with these
products.
AeroGrow
believes that the complexities of currently available commercial hydroponic
products fail to address the needs and wants of the mass consumer market,
leaving that market unserved. AeroGrow further believes that its trade secrets,
patent-pending inventions and companion technologies have simplified and
improved hydroponic and aeroponic technologies and enabled it to create the
first indoor aeroponic gardening system appropriate for the mass consumer
market.
AeroGrow’s
Proprietary Technology
AeroGrow
has spent more than three years innovating, simplifying, combining and
integrating numerous proprietary technologies and inventions into a family
of
“plug and grow” aeroponic kitchen garden systems and related seed kits
specifically designed and priced for the mass consumer market. AeroGrow has
filed thirteen patent applications in the United States and one international
patent application to protect its inventions. Following is a description
of
AeroGrow’s proprietary technologies and inventions which are used together in
its kitchen garden system and seed kits. The inventions under the patent
applications have not been granted patents, and there can be no assurance
that
patents will be granted.
Rainforest
Nutrient Delivery System
.
AeroGrow’s “rainforest” nutrient delivery system combines its patent-pending
technologies with features from several advanced hydroponic or aeroponic
methodologies into a proprietary system designed to provide the benefits
of
accelerated aeroponic plant growth. These hydroponic or aeroponic methodologies
include:
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Drip
Technologies
.
Drip systems create nutrient irrigation by pumping nutrient solution
from
a reservoir up to the base of the plant and saturating a soil-less
growing
medium. The growing medium delivers nutrients and moisture to plant
roots
which is similar to rainwater as it drips through the soil and
past plant
roots.
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Ein
Gedi Aeroponic Technologies
.
Plant roots in aeroponic systems are suspended in an air chamber
and
bathed at regular intervals with nutrient solution. In the Ein
Gedi
variation of aeroponics, plant roots are allowed to grow directly
into
nutrient solution after passing through an air
space.
|
AeroGrow’s
rainforest technology suspends plant roots into a 2 to 4 inch air chamber
above
an oxygenated nutrient solution. Nutrients are pumped from the nutrient
reservoir to the base of each plant where a regulated flow of nutrients drips
down through plant roots.
Pre-Seeded
Bio-Grow Seed Pods
.
AeroGrow’s proprietary bio-grow seed pods include pre-implanted seeds, a
bio-sponge growing medium, removable bio-dome covers and a grow basket to
assist
with the proper distribution of moisture. AeroGrow’s seed pods must be used in
its kitchen garden systems in order to grow plants. AeroGrow believes consumers
may use seeds purchased from other sources for use in its kitchen garden
system,
although AeroGrow cannot provide any assurances on germination and growth
in
such cases.
AeroGrow
selected the seeds to pre-implant in its bio-grow seed pods after two years
of
extensive research which included:
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analyzing
thousands of seed varieties,
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growing
and testing several hundred varieties of plants in its greenhouse
and grow
laboratories, and
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testing
the taste and appearance of its grown vegetables, herbs and flowers
with
consumers.
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AeroGrow
implants its selected seeds in a bio-sponge growing medium principally developed
for rapid germination and enhanced root growth. The bio-sponge helps facilitate
and regulate oxygen, moisture and nutrition, and supports plant roots from
germination through maturity and harvest. AeroGrow’s bio-grow domes create a
mini-greenhouse environment by covering the grow surface to create a near-100%
humidity air chamber which is optimal for most plant germination and initial
growth. Bio-grow domes help regulate moisture and temperature to levels optimal
for plant germination.
AeroGrow’s
proprietary bio-grow seed pods are a vital component of its kitchen garden
system. AeroGrow’s bio-grow seed pods will be packaged along with nutrients in
its proprietary seed kits to be used exclusively in its kitchen garden systems.
These seed kits currently include seeds for cherry tomatoes, cilantro, chives,
basil, dill, oregano, mint, chili peppers and flowers. In addition to pre-seeded
pods, AeroGrow also plans to allow consumers to purchase unseeded pods to
give
them the opportunity to grow their own seeds in AeroGrow’s kitchen garden
systems. AeroGrow seed-pods will be required for use with the kitchen garden
systems. However, not all plants are appropriate to grow in the kitchen garden
system.
Microprocessor-Based
Control Panel and Nutrient Cycle Delivery System
.
AeroGrow believes that certain common problems face both experienced gardeners
and beginning gardeners, including:
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improperly
watering plants,
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improperly
feeding plants, and
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failing
to provide plants with sufficient light needed for healthy
growth.
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To
assist
consumers, especially inexperienced gardeners, AeroGrow has developed two
patent-pending microprocessor-based technologies that address these common
problems. These technologies are designed to:
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regulate
the lighting system,
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automatically
alert users when it is time to add water and
nutrients,
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help
simplify and reduce consumers’ time and involvement in caring for
plants,
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reduce
the variables and errors often made by consumers in plant care,
and
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AeroGrow
has developed two kitchen garden systems with different control systems which
are described, below, at “AeroGrow’s Kitchen Garden Systems.” AeroGrow’s
microprocessor-based control panel will be available as an accessory for
its
basic kitchen garden system and is included as a standard feature on its
deluxe
kitchen garden system. This control panel includes an electronic nutrient
and
water reminder system and microprocessor-controlled lights that alert consumers
to add water and nutrients when needed and help ensure that plants are properly
fed and receive the proper lighting.
In
addition, AeroGrow’s deluxe kitchen garden system includes its
microprocessor-based nutrient cycle delivery system as a standard feature.
With
its nutrient cycle delivery system the consumer selects from four plant types
(lettuce, herbs, tomatoes or flowers) and the system then automatically adjusts
and optimizes the nutrient, water and lighting cycles based on the plant
variety
selected.
Time-Release
Nutrient Tablets
.
Plants
require a balanced mixture of nutrients for optimal growth. Certain nutrient
combinations, including calcium nitrate and magnesium sulphate, generally
cannot
be combined, mixed or stored in the same container due to specific chemical
reactions that bind them together and renders them useless to plants. Hydroponic
growers seek to solve this problem by packaging various nutrient concentrations
in up to four separate containers which are individually measured and added
as
needed by the consumer. These nutrient complexities require consumers using
hydroponic systems to:
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understand
the blends of nutrient fertilizer that are best suited for the
specific
variety of plants they are growing,
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understand
the nutrient requirements for the specific plant variety at each
of three
stages of its growth and maturity,
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measure
and blend nutrients from up to four different concentrated solutions
and
add them to specific measured quantities of water,
and
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monitor,
adjust and re-mix nutrient fertilizers over
time.
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AeroGrow
believes that current plant nutrition processes required for successful
hydroponic growing have created barriers to mass consumer use and acceptance
because they are cumbersome and complex. To help overcome these barriers,
AeroGrow has spent nearly three years developing time-release nutrient tablets
designed specifically to deliver the proper nutrients to the plants, while
offering consumers a user-friendly nutrient system. The consumer simply adds
the
plant-specific nutrient tablets to the kitchen garden systems when instructed
by
the microprocessor-based nutrient cycle delivery system, usually once every
two
weeks. The nutrient tablets eliminate the need for measuring and mixing
multi-part nutrient formulas and storing various nutrients in separate
containers. The nutrient tablets customize multiple nutrients and minerals
such
as calcium, magnesium and iron for specific plant varieties at different
stages
of their growth.
Buffering
Formula for Water pH Level
.
Typical
garden and house plants grow well in aeroponic and hydroponic systems when
the
pH level of the water is maintained in a 5.5 to 6.5 range Many varieties
of
plants exhibit retarded growth or cannot be grown hydroponically in water
having
a pH level of 7.0 and above. High pH level is much less a problem when plants
are grown in soil because the soil helps neutralize the negative effects
of high
pH levels. AeroGrow has tested the water pH levels in many major cities
throughout the United States and has found that many municipal water systems
have higher pH levels than the desirable range for hydroponic growing: Los
Angeles at 7.5 to 8.5, Boston at 9.0, the San Francisco Bay area at 7.5 to
9.7,
St Louis at 9.0 to 9.2 and Washington, D.C. at 7.7 to 8.5.
To
address these problems, most hydroponic growers monitor and chemically adjust
water pH levels on a daily or weekly basis to address these varying pH levels.
This generally requires purchasing a professional meter for monitoring pH
levels
and purchasing and applying various pH-adjusting chemicals.
AeroGrow
believes that the problems associated with the wide range of water pH levels
which are found throughout the United States (and possibly internationally),
as
well as the complexities involved in monitoring and regulating pH levels,
are
significant barriers which limit the use of hydroponic gardening by the general
public. AeroGrow has developed a patent-pending buffering formula that
automatically adjusts and balances the water pH level to a level capable
of
sustaining healthy plant growth in an aeroponic environment. This buffering
formula is pre-mixed into AeroGrow’s time-release nutrient tablet described
above, which eliminates the need for consumers to understand water chemistry
or
own the equipment required to monitor and regulate water pH levels.
Integrated
and Automated Lighting System
.
Hydroponic systems typically do not incorporate built-in lighting systems.
Lighting systems must typically be purchased as separate components and
assembled by the consumers. Hydroponic lighting systems generally consist
of a
ballast, reflector hood, lights and an electronic timer. The consumer must
suspend the lighting system over the hydroponic unit and then continually
raise
the lights as the plants grow. Complete lighting systems often cost hundreds
of
dollars, which is considerably more than the cost of AeroGrow’s entire kitchen
garden system.
AeroGrow’s
kitchen garden systems include built-in adjustable grow lights with ballast,
reflector hood, lights and electronic timer. AeroGrow’s integrated lighting
systems include high-output compact fluorescent light bulbs that deliver
a
spectrum and intensity of light designed to help optimize plant growth without
natural light. In addition, AeroGrow’s lighting system is fully automated and
controlled by its microprocessor-based control panel described
above.
Adaptive
Growth Software
.
Through
continual research and testing in AeroGrow’s grow laboratory, AeroGrow’s plant
scientists have determined that better plant growth can be achieved if
nutrients, moisture and lighting are adapted and customized to the specific
stages of the plants’ growth: germination, initial growth and advanced growth.
AeroGrow has developed a proprietary software technology entitled “adaptive
growth technology” which automatically analyzes and adjusts the nutrient
delivery schedules based on plant maturity. AeroGrow intends to introduce
this
technology into its deluxe kitchen garden system as an added feature for
specialty retailers in the future.
AeroGrow’s
Kitchen Garden Systems
AeroGrow
has initially developed two kitchen garden systems with projected initial
retail
prices ranging from approximately $99 to $149 depending on the features and
model selected and the channels of distribution through which they will be
marketed.
Basic
Kitchen Garden System
.
AeroGrow’s basic kitchen garden system features its rainforest nutrient delivery
system and an integrated lighting system. This product is projected to retail
for $99. AeroGrow’s microprocessor-based control panel will be available as an
optional accessory with a projected retail price of $29.
Deluxe
Kitchen Garden System
.
AeroGrow’s deluxe kitchen garden system contains the features of its basic
kitchen garden system, including the microprocessor-based control panel,
and
adds its microprocessor-based nutrient cycle delivery system. AeroGrow currently
plans to launch this product as part of an initial direct marketing campaign
following the Merger and Offering at a price of $149.
AeroGrow’s
Seed Kits
AeroGrow
has developed and is producing a variety of seed kits to be used in its kitchen
garden systems. These seed kits include pre-seeded bio-grow seed pods and
a
three- to six-month supply of nutrients, including its buffering formula
for
water pH level. AeroGrow expects its seed kits to retail at prices ranging
from
$9.99 to $19.99. Currently developed seed kits include:
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grandiflora
petunia garden, and
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international
basil garden.
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AeroGrow’s
seed kits, time-release nutrient tablets and replacement light bulbs will
be
sold to consumers for use with its kitchen garden system. Additionally, seed
pods will be sold for use by consumers who wish to try to grow their own
seeds,
but no assurance can be given that all varieties of plants will grow with
the
AeroGrow kitchen garden system.
Additional
Future Products
In
addition to its kitchen garden systems, AeroGrow is developing and plans
to
market in the future companion products designed to provide a successful
gardening experience for consumers of all experience levels while providing
a
potentially continuing and profitable revenue stream for it. AeroGrow’s
development and production of the following additional products will depend
in
large part on the revenues generated from future product sales and the
availability of additional financings.
Magic
Garden
.
AeroGrow’s children’s magic garden is designed for simplicity and ease of use.
AeroGrow anticipates introducing this garden system in the toy
market.
Decorator
Office Garden
.
AeroGrow is developing a garden system designed specifically for use in offices
and work stations to introduce decorative and fragrant living flowers into
the
workplace.
Professional
System
.
A
larger-scale garden system is planned for small businesses, florists,
restaurants, large families and gardening enthusiasts who want to grow large
quantities of vegetables, herbs and flowers.
Future
Seed Kits
.
AeroGrow plans to complete development and start producing an additional
six to
ten seed kits in 2006. AeroGrow currently anticipates that these seed kits
could
include strawberries, cilantro garden, sunny flower garden, baby bell peppers,
Asian hot peppers, Italian basil garden, Italian herb garden, French herb
garden
and salsa garden with cherry tomatoes, jalapenos and cilantro.
Other
Additional Future Products
.
AeroGrow is considering other products for future development,
including:
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a
solar-powered system for outdoor
use,
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educational
units specifically designed for use in
schools,
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a
“vacation-friendly” water reservoir attachment that will hold sufficient
water to enable plants to remain healthy for about three weeks
while
untended, and
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tiered
“wall farm” systems that will contain several kitchen garden systems
designed to produce larger quantities of
crops.
|
Development
of the additional range of systems, including units for the office, some
seed
kits, water reservoir development and wall units, are included in the estimated
research and development expenses for the future. For other product expansions
and new products, AeroGrow has not budgeted amounts for their research and
development at this time, and in connection therewith may need to raise
additional capital.
Markets
Based
on
AeroGrow’s informal market research, consisting of individual consumer
interviews, focus groups and Internet survey responses, AeroGrow believes
that
its kitchen garden systems will appeal to a broad spectrum of the people
in the
United States and internationally, including Europe and Japan. AeroGrow believes
that its products will appeal to at least four major market
segments:
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novice
and “want-to-be” gardeners,
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the
kitchen products and small appliances market,
and
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the
office and home décor markets.
|
Further,
based on its discussions with potential distributors, AeroGrow believes that
its
kitchen garden systems also present opportunities in the specialized toy,
educational, gift and hydroponic hobbyist markets.
Gardener
Market
.
The
2002 National Gardening Survey conducted by the National Gardening Association
states that gardening was America’s number one hobby with more than 70 million
active gardeners. In the United States in 2002 there were estimated to be
27
million vegetable gardeners with one out of every four households having
a
vegetable garden, over 15 million fresh herb gardeners and over 20 million
flower gardeners. AeroGrow believes that its kitchen garden systems and related
products can offer both expert and novice gardeners several major benefits
not
readily available through traditional gardening methods, including:
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the
ability to grow fresh herbs, lettuces, vegetables, tomatoes and
flowers
year-round, regardless of indoor light levels or seasonal weather
conditions,
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the
ability to easily start plants indoors during colder months and
then
transplant them outdoors at the onset of the outdoor growing
season,
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the
ability to use stem cuttings to propagate multiple reproductions
of the
desired plants in AeroGrow’s kitchen garden
systems,
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the
reasonable assurance that crops can grow successfully by significantly
reducing potential obstacles such as uncertain weather and garden
pests,
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the
ease of growing hydroponically in contrast to the toil associated
with
traditional gardening, including preparing the soil, planting,
thinning,
weeding and watering.
|
“Want-to-be”
Gardener Market
.
AeroGrow believes that many people have an interest in gardening but lack
the
knowledge, confidence, available space, equipment or time to garden. AeroGrow
has observed the following barriers to beginning to garden:
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gardening
requires an ongoing time
commitment,
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apartment,
high-rise and condominium dwellers often lack the land needed for
a
traditional garden,
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gardening
requires physical work which can be a significant barrier to older
people
or people with limited mobility or health
issues,
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buying
the necessary equipment to garden can be expensive,
and
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gardening
requires knowledge and expertise.
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AeroGrow
believes that its kitchen garden systems overcome many of these barriers
and
provide a simple, convenient way for many current non-gardeners to begin
to
garden.
Kitchen
Products and Small Appliances Market
.
AeroGrow believes that many Americans now enjoy cooking as a form of
entertainment or hobby and that these people repeatedly purchase new kitchen
appliances and will be motivated to purchase AeroGrow’s kitchen garden systems
and related seed kits. Consumers in this potential market include:
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people
interested in cooking who would appreciate the convenience and
satisfaction of having a readily available supply of fresh-cut
herbs and
basils to flavor soups, salads and other
dishes,
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people
who prefer the distinctive texture and taste of freshly picked,
vine-ripened tomatoes, basils, lettuces and other vegetables over
days-old
supermarket produce, and
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people
interested in healthy, pesticide-free foods for themselves and
their
families, reflecting both the rapidly growing interest in naturally
and
organically grown foods and the increasing number of people who,
for
health or weight concerns, include salads and fresh vegetables
as part of
their families’ diets.
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AeroGrow
believes that its kitchen garden systems will be embraced in this market
by
people who understand the value of having an ongoing supply of fresh herbs
and
vine-ripened produce throughout the year.
Office
and Home Decor Market
.
Flowers
are frequently used to brighten homes and offices around the world. It is
difficult to readily grow flowers indoors due to a lack of sufficient light
and
growing knowledge. As a result, people often use cut flowers which are
expensive, short-lived and require ongoing maintenance. AeroGrow’s kitchen
garden systems enable colorful and fragrant flowers to be easily grown indoors
year-round. Flowers grown with its kitchen garden systems will last for months
with minimal care and maintenance. Flowers can be grown in a wide variety
of
indoor locations, including kitchen and bathroom countertops, living rooms,
bedrooms, family rooms, offices, work stations, waiting rooms and lobbies.
In
addition, professional plant caretakers may be motivated to include AeroGrow’s
kitchen garden systems among their traditional plant options because of the
relatively low cost and ease of maintenance of AeroGrow’s systems.
Specialty
Markets
.
AeroGrow’s informal market research indicates that several specialized markets
potentially exist for AeroGrow’s kitchen garden systems in the future,
including:
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toy
market for a children’s “root-viewing”
garden,
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classroom
market for student education relating to plant
growth,
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hydroponic
enthusiast market, and
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international
markets, particularly in large cities with limited outdoor garden
space.
|
Marketing
and Sales Strategy
AeroGrow
plans to launch its kitchen garden system in the United States during the
first
half of 2006. AeroGrow’s planned marketing strategy is to launch its kitchen
garden systems with a nationwide public relations campaign, followed by sales
of
its products through direct marketing vehicles and then expanded distribution
through retail channels as described, below, in “AeroGrow’s Plan of Operation.”
AeroGrow plans to expand its marketing and distribution internationally when
its
products have been successfully launched and established in the United States.
AeroGrow’s proposed direct marketing activities include a national public
relations campaign, 60-second television spots, 30-minute infomercials, home
shopping networks, print advertising and Internet-based advertising. AeroGrow’s
plan is designed to educate prospective customers while creating widespread
awareness of its kitchen garden systems and generating direct sales in four
key
target markets: the experienced gardener market, the “want-to-be” gardener
market, the kitchen products and small appliances markets and the office
and
home décor market.
Competition
Aeroponic
and hydroponic technologies have historically been limited to ardent hobbyists
and commercial growing facilities worldwide. AeroGrow believes that it is
the
first company to develop and offer a simple soil-less indoor growing system
for
the mass consumer market. AeroGrow further believes that its proprietary
and
patent-pending technologies, and trade secrets and its product development
efforts to date will provide certain barriers to entry for potential
competitors.
Typical
hydroponic manufacturers offer a range of equipment and accessories through
distributors or small independent “hydro-shops” in a trade-oriented manner
similar to plumbing or electrical suppliers. Purchasers typically mix and
match
equipment from various suppliers in an “a la carte” fashion to individually
customize a large system that they then assemble on their premises. AeroGrow
believes that these products are substantially more expensive than the proposed
selling prices of the company’s products.
AeroGrow
believes that its simplified and complete kitchen garden systems and planned
methods of distribution offer significant benefits from these traditional
hydroponic industry practices. However, AeroGrow recognizes that there are
companies that are better funded and have greater experience in producing
hydroponic products in commercial markets, including, but not limited to,
companies such as General Hydroponics and American Hydroponics. These companies
could potentially decide to focus on the consumer market with competing
products. AeroGrow could also potentially face competition from gardening
wholesalers and large and profitable soil-based gardening companies, including,
but not limited to, the Burpee Seed Company and Gardener’s Supply Company,
should they decide to produce a competitive product.
Nevertheless,
AeroGrow believes that its kitchen garden systems and related products can
compete effectively in the marketplace on the basis of their affordable cost,
user-friendly design and the benefits offered by its proprietary and
patent-pending technologies. Further, to the best of AeroGrow’s knowledge, none
of the growing systems currently available for use in the home at AeroGrow’s
projected retail prices provide an integrated grow lighting system and are
therefore unsuited to grow fresh herbs, vegetables and flowers indoors without
the additional purchase of a separate bulky lighting system. AeroGrow believes
that these products are too large, noisy and unattractive for indoor home
kitchen or office use.
Manufacturing
AeroGrow
has signed a manufacturing agreement with Source Plus, Inc., an Alabama
corporation, and Mingkeda Industries Co., Ltd., a Chinese company, for the
initial manufacture of its kitchen garden systems and accessories. This
agreement is described at “Manufacturing” on page of this prospectus. AeroGrow
anticipates that it will take Mingkeda approximately 30 to 60 days to produce
and ship its kitchen garden systems to the Untied States via ocean freight
from
the date an order is placed. In addition to the Mingkeda plant, AeroGrow
is
exploring relationships with other manufacturers located in China as an
alternative supply source should sales volumes require added
production.
Mingkeda
has informed AeroGrow that it can produce approximately 30,000 kitchen garden
systems per month with its existing set of tools and can increase its production
to approximately 100,000 kitchen garden systems per month by adding an
additional set of tools and injection molding presses. Mingkeda estimates
that
it can add the additional set of tools and presses within 60 to 90 days
following AeroGrow’s notification. To date, AeroGrow has received 716 units and
is expecting in February 2006 an additional 4,000 units. There is no assurance
that Mingkeda will be able to meet the projected estimated deliveries. If
it is
not able to meet the orders, the company’s sales will be adversely
effected.
AeroGrow
intends to initially produce and assemble its bio-grow seed pods in its
laboratory facilities in Longmont, Colorado. The seed pods and kitchen garden
systems will be shipped to a fulfillment center in Reno, Nevada. Innotrac
Corporation will provide warehousing, order fulfillment and shipping for
AeroGrow’s products. AeroGrow’s agreement with Innotrac is described, below, at
“Distribution.”
Product
Returns and Warranties
AeroGrow
has had no sales to date and thus has no experience dealing with returns.
AeroGrow currently anticipates that products may be returned to it at its
facilities in Longmont, Colorado. AeroGrow anticipates that the returned
products will go to inventory and AeroGrow may repair the products to sell
as
refurbished products. Mingkeda will provide AeroGrow with replacement part
assemblies for products which are deemed defective due to materials or
manufacturing complications. AeroGrow have not yet determined the form of
warranties AeroGrow will grant for its products.
Intellectual
Property
AeroGrow
has filed thirteen patent applications in the United States and one foreign
patent application to protect its technologies and products. These applications
are for:
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seed
germination pods that transport, support and germinate seedlings
in
aeroponic or hydroponic devices and support the growth of the plant
to
maturity, filed in November 2003 and responded to examiner’s first
action,
|
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|
use
of infrared beams to measure plant roots which creates a basis
for the
regulation of nutrients, oxygen and plant growth, filed in December
2003,
|
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devices
and methods for growing plants, filed as an international application
in
September 2004,
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PONDS
(passive, osmotic nutrient delivery system) technology which is
a nutrient
delivery system using no moving parts, filed in March
2005,
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RAIN
(rain-aerated ionized nutrient) system technology which hyper-oxygenates
and ionizes plant roots in AeroGrow’s kitchen garden systems, filed in
March 2005,
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|
rainforest
growing dome for maximizing germination, filed in April
2005,
|
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|
growing
basket for optimizing liquid and nutrient delivery, filed in April
2005,
|
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|
methods
for growing plants using seed germination pods, filed in April
2005,
|
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|
devices
and methods for growing plants by measuring liquid or nutrient
usage rate,
the adaptive growth learning technologies, filed in December
2005,
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time-release
oxygen generating nutrient compositions and methods for growing
plants,
filed in December 2005,
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pH
buffered plant nutrient compositions and methods for growing plants,
filed
in December 2005,
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devices
and methods for delivering photoradiation to plants, filed in June
2005,
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smart
garden devices and methods for hydroponic gardens, filed in June
2005,
and
|
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indoor
gardening appliance, filed in August
2006.
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AeroGrow
believes that these patent applications do not infringe on issued patents
owned
by others. AeroGrow believes that if it fails to receive patents for any
one of
these patent applications, its operations will not be substantially, adversely
affected. In addition to the patents being sought, AeroGrow maintains some
crucial information about the products as trade secrets which are closely
guarded. Also, AeroGrow believes that to reverse engineer some of its
technology, even when the patents become public, would take a substantial
amount
of time and be expensive. The inventions under the patent applications have
not
been granted patents, and there can be no assurance that patents will be
granted.
AeroGrow
has filed nine trademark applications in the United States to protect its
products and brand equity. The applications are for:
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AeroGrow,
filed in April 2005 and received examiners’ first
action,
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AeroGrow
Kitchen Garden, filed in June 2005 and received examiners’ first
action,
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·
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Farmers
Market Fresh, filed in July 2005 and received examiners’ first
action,
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·
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AeroGrow
Smart Garden, file in August 2005 and received examiners’ first
action,
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AeroGrow
Smart filed in August 2005 and received examiners’ first
action,
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Kitchen
Smart filed in August 2005 and received examiners’ first
action,
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AeroGrow
filed in August 2005 and received examiners’ first
action,
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KitchenHarvest
filed in December 2005, and
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AeroGarden
filed in December 2005.
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Each
of
AeroGrow’s employees, independent contractors and consultants has executed
assignment of application agreements and nondisclosure agreements. The
assignment of application agreements grant to AeroGrow the right to own
inventions and related patents which may be granted in the United States.
The
nondisclosure agreements generally provide that these people will not disclose
AeroGrow’s confidential information to any other person without its prior
written consent.
Governmental
Regulation and Certification
To
the
best of its knowledge, AeroGrow believes that it is complying with United
States
regulations concerning the shipping and labeling of seeds and nutrients.
Currently, the components for the kitchen garden system are UL certified.
AeroGrow has filed initial applications for UL certification and ETL
certification for the kitchen garden system as a whole. These certifications
confirm some level of fire safety for consumers and is required for sales
of
products through retailers.
Personnel
AeroGrow
currently employs approximately 21 persons with 19 full-time and 2 on a
part-time basis. In addition, AeroGrow contracts for the services of 31
part-time and project consultants. AeroGrow believes that its employee relations
are good. AeroGrow intends to continue to conduct its business primarily
using
employees and consultants. However, it is likely that some consultants will
become employees in the future, including its chief marketing officer, Randy
Seffren. AeroGrow believes that it will hire additional employees and/or
consultants in the future as its operations grow. AeroGrow is planning to
outsource some activities, in whole or part, such as manufacturing,
telemarketing, public relations, infomercial production, fulfillment and
shipping.
Facilities
AeroGrow
leases approximately 918 square feet in Boulder, Colorado, pursuant to a
lease
agreement that expires on December 30, 2005, which was extended on a
month-to-month basis. AeroGrow maintains a grow room, laboratory and research
facility in this space. The lease agreement requires AeroGrow to pay monthly
rent in the amount of $1,000.
AeroGrow
leases approximately 800 square feet in Boulder, Colorado, pursuant to a
month-to-month rental agreement. AeroGrow is preparing this space to use
as an
additional laboratory facility. The rental agreement requires AeroGrow to
pay
monthly rent in the amount of $700.
AeroGrow
leases 3,075 square feet of office space in Boulder, Colorado, from one of
its
consultants pursuant to a lease agreement that expires in April 2006. The
lease
agreement requires AeroGrow to pay monthly rent in the amount of $2,534.
AeroGrow is also required to issue 1,267 shares of AeroGrow common stock
per
month to this consultant as additional rent for an aggregate of 7,604 additional
shares through the end of the lease. AeroGrow plans to renew this lease in
April
2006 with rental payments solely in cash.
AeroGrow
also rents 1,800 square feet of laboratory, prototyping and manufacturing
space
in Longmont, Colorado, pursuant to a month-to-month rental agreement. The
rental
agreement requires AeroGrow to pay monthly rent in the amount of $1,200.
AeroGrow use this space to manufacture its seed pods.
While
its
facilities appear adequate for the foreseeable future, AeroGrow may add space
to
meet future growth as needed. Upon expiration of its current leases, AeroGrow
believes that it will be able to either renew its existing leases or arrange
new
leases in nearby locations on acceptable terms. AeroGrow believes that these
properties are adequately covered by insurance.
Legal
Proceedings
AeroGrow
is not a party in any bankruptcy, receivership or other legal proceeding,
and to
the best of AeroGrow’s knowledge, no such proceedings by or against AeroGrow
have been threatened
PLAN
OF OPERATIONS
The
following plan of operation provides information which AeroGrow’s management
believes is relevant to an assessment and understanding of AeroGrow’s business,
operations and financial condition. The discussion should be read in conjunction
with the audited financial statements and notes thereto which are included
in
this Memorandum. This plan of operation contains forward-looking statements
that
involve risks, uncertainties and assumptions. AeroGrow’s actual results may
differ substantially from those anticipated in any forward-looking statements
included in this discussion as a result of various factors, including those
set
forth in “Risk Factors” contained elsewhere in this Memorandum.
Overview
AeroGrow
is a development stage company in the business of developing, marketing and
distributing advanced indoor aeroponic garden systems. Since formation, its
principal activities have consisted of product research and development,
market
research, business planning and raising the capital necessary to fund these
activities. AeroGrow has completed development of its kitchen garden systems
and
related bio-grow seed pods and has started manufacturing activities. AeroGrow
placed its initial manufacturing order for 4,000 units in December 2005 and
anticipates taking delivery of the units in the first quarter of 2006. AeroGrow
anticipates that it will commence initial marketing and distribution of its
products in the first half of 2006.
Liquidity
and Capital Resources
As
of
February 24, 2006, AeroGrow has generated net proceeds from the sale of the
following securities:
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$2,279,444
from private placements of 2,040,611 shares of its common stock
during
2002, 2003 and 2004,
|
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$215,000
from the exercise of its redeemable $1.25 warrants and $2.50 warrants
for
164,000 shares of common stock in 2003, 2004 and through June 30,
2005,
|
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$2,307,737
from a Colorado registered offering of units consisting of 544,228
shares
of common stock and its redeemable $10.00 warrants and $15.00 warrants
during 2004,
|
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$2,591,554
from its debt offering of convertible notes and redeemable 2005
warrants
in June, July, August and September
2005,
|
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·
|
$8,000
from the issuance of 1,600 shares of common stock pursuant to an
agreement
with an employee at $5.00 per share during the period June 30,
2005
through September 30, 2005,
|
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·
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$85,000
from the issuance of 38,000 shares of common stock pursuant to
the
exercise of $1.25 and $2.50 warrants,
|
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|
$962,500
from the exercise of outstanding $1.25, $2.50 and $5.00 warrants
for
395,000 shares of common stock during December 2005;
and
|
|
·
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$10,000,000
from the sale of common stock and warrants in the Offering, consummated
February 24, 2006.
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As
of
January 31, 2005, AeroGrow had a cash balance of approximately $1,186,000.
This
cash, along with the proceeds from this Offering will be sufficient to meet
its
liquidity requirements for the next 12 to 18 months. AeroGrow anticipates
its
principal sources of liquidity during 2006 will be the net proceeds from
this
Offering and proceeds from initial sales of AeroGrow’s products.
AeroGrow
expects to incur additional losses in the foreseeable future and at least
until
such time as it successfully commences volume production of its products
and
successfully launches its marketing and public relations campaigns for its
products. Accordingly, there is no historical financial or other information
about AeroGrow which you could use to determine its future
performance.
AeroGrow
has used the funds raised to date to:
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complete
the research and development of its basic and deluxe kitchen garden
systems,
|
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commence
pilot manufacturing of its deluxe kitchen garden system and eight
varieties of seed kits,
|
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commence
development of its direct response marketing programs including
one
30-minute infomercial and 60-second television commercials,
and
|
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commence
development of its public relations launch scheduled for the first
half of
2006.
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AeroGrow
anticipates that existing cash resources will be sufficient to complete the
initial version of these activities. On completion of the Merger and Offering,
AeroGrow plans to launch the sale of its kitchen garden systems nationally
through a direct-to-consumer advertising campaign and through selected retail
outlets. AeroGrow intends to use the funds raised from the Offering principally
to purchase inventory, fund its initial media advertising, fund a portion
of its
public relations campaign and trade show costs. If the holders choose not
convert or elect not to extend the maturity of the Convertible Notes, AeroGrow
would use a significant portion of the net proceeds from the Offering to
repay
the Convertible Notes instead of funding its plan of operations as outlined
above.
Plan
of Operation
During
the first six months of 2006, AeroGrow intends to start manufacturing,
marketing, distributing and selling its kitchen garden systems. Manufacturing
activities began in January 2006 for pilot production, and AeroGrow expects
to
have product available in the first quarter 2006 for test marketing. AeroGrow
intends to complete its infomercial in the February 2006 time frame and begin
test marketing in March 2006. The initial test marketing will include shipments
to retail launch partners. As the company begins the test marketing and launch
of sales, it will have to increase its management team and operations and
administrative staff. AeroGrow will also need to increase its new product
development activities to sustain operations beyond its initial product
offerings.
AeroGrow
is currently developing other marketing materials. These include public
relations kits, in-store point of purchase supplies, scripting of the
infomercial and short-form television show and print media items. Many of
these
items will be completed in the period of March to June 2006.
AeroGrow’s
plan of operation for the twelve to eighteen months after the Merger and
Offering will depend, in part, on the assumptions used to develop its business
plan and whether they were or have been inaccurate or need to be changed
to
respond to different assumptions or different business needs or objectives.
Any
changes could cause the proceeds of the Offering to be insufficient to fund
its
operations and it could be required to seek additional financing sooner than
it
currently anticipates.
Manufacturing.
AeroGrow
plans to manufacture its products using contract manufacturing sources that
are
supervised by its internal engineering and manufacturing teams. Its bio-grow
seed pods will initially be produced and assembled in its laboratory facilities
in Longmont, Colorado.
On
September 30, 2005, AeroGrow entered into a manufacturing agreement with
Source
Plus, Inc. an Alabama corporation, and Mingkeda Industries Co., Ltd., a Chinese
company located in the Guangdong Province of China that has primarily
manufactures light fixtures in the past. This agreement supersedes a prior
agreement with Mingkeda and Source Plus. Under the terms of this agreement,
Source Plus advanced monies to Mingkeda for tooling and molds to build
AeroGrow’s products. To reimburse Source Plus for its advance to Mingkeda,
AeroGrow issued 62,000 shares of its common stock to Source Plus in October
2005
with an estimated market value of $5.00 per share. AeroGrow recorded a $310,000
asset for tooling which AeroGrow will depreciate over a period of three years
to
reflect the estimated useful life of the tooling. AeroGrow and Source Plus
have
agreed to certain selling restrictions on its sale of AeroGrow common stock.
In
the event certain capital raising is not completed by June 1, 2006, Source
Plus
may require AeroGrow to repay the $155,000 in exchange for its return of
AeroGrow stock. If the market value of AeroGrow common stock issued to Source
Plus is less than $155,000 one year after the closing of the Offering, then
AeroGrow has agreed to pay such difference to Source Plus in cash within
sixty
days following the one year date, plus interest at 5% per annum. Further,
in
return for a $0.50 per unit price concession from Mingkeda for products AeroGrow
has purchased, AeroGrow issued 10,000 shares of its common stock to Mingkeda
in
October 2005 with an estimated market value of $5.00 per share based on the
discussions the company had with investment bankers at that time. These shares
are subject to the same selling restrictions as the stock issued to Source
Plus.
Prior to the closing of the Merger, AeroGrow expects Source Plus and Mingkeda
to
execute a new lock-up agreements with restrictions similar to those agreed
to by
KRM Fund. AeroGrow recorded a $50,000 expense for inventory which AeroGrow
will
charge to cost of sales at a rate of $0.50 per unit for each unit sold or
one
year, whichever occurs sooner.
The
new
agreement provides for payment of the purchase price of products manufactured
by
Mingkeda as follows: 30% paid twenty-five days prior to shipment, 50% paid
upon
shipment and the remaining 20% paid twenty days after shipment. AeroGrow
has
also agreed to pay to Source Plus a commission of 2% of the total purchases
of
the product with such payments to be made using the same proportions as
AeroGrow’s payments to Mingkeda. Mingkeda will manufacture and ship the products
as and when required by AeroGrow and will maintain an agreed level of quality.
Mingkeda has agreed to develop sufficient capacity to manufacture up to 30,000
kitchen garden systems per month. AeroGrow will have the right to audit
Mingkeda’s manufacturing performance periodically and maintain an agent in the
Mingkeda plant to inspect its production. AeroGrow believes that its products
will be manufactured to the highest quality standards at acceptable
costs.
The
manufacturing agreement with Mingkeda and Source Plus provides for protection
of
the intellectual property rights of AeroGrow. Under the agreement, Source
Plus
is specifically responsible for working as the liaison between AeroGrow and
Mingkeda with responsibility for oversight of quality control in the
manufacturing of the products, reviewing of specifications and making sure
that
Mingkeda complies, monitoring order fulfillment and similar tasks related
to
quality of the finished goods. Source Plus receives a 2% commission for their
work. Mingkeda manufactures the product to the specifications of AeroGrow
at a
predetermined line item component and assembly cost and is subject to cost
fluctuations only due to changes in exchange rate and cost of raw materials,
which must be pre-approved by AeroGrow. Mingkeda requires a 30% payment 30
days
prior to production, 50% payment on shipping from China and 20% payment 30
days
following shipping.
Public
Relations Program
.
During
the first half of 2006, AeroGrow plans to initiate a public relations program
designed to gain a wide exposure for AeroGrow and its kitchen garden systems
through news stories:
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on
radio and television,
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in
food and gardening sections of
newspapers,
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in
food and gardening magazines, and
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AeroGrow’s
products will also be sent to selected major food and gardening editors,
other
recognized gardening and cooking authorities and celebrities to familiarize
them
with its products. AeroGrow has signed a letter agreement with Patrice Tanaka
& Company, Inc. to manage its public relations activities. This agreement is
cancelable by either party at any time. AeroGrow have agreed that 25% of
Tanaka’s hourly compensation will be paid in shares of its common stock at the
then current market value. AeroGrow currently estimates that the total
compensation payable to Tanaka during the term of this agreement will be
approximately $80,000. Prior to closing the Merger, AeroGrow expects Tanaka
to
execute a lock-up agreement with restrictions similar to those agreed to
by KRM
Fund.
Direct
Response Marketing and Sales.
In
connection with its public relations campaign AeroGrow will begin testing
various direct marketing advertisements including:
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60-second
television commercials,
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30-minute
infomercials,
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home
shopping networks, and
|
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print
and Internet advertising.
|
AeroGrow
will develop a plan based on the results of this testing to generate direct
sales nationally in the experienced gardener market, the “want-to-be” gardener
market, the kitchen products and small appliance markets and the office and
home
décor markets.
AeroGrow
receives the full retail selling price for its products when AeroGrow market
directly to consumers, which yields higher gross profit margins than sales
made
at wholesale prices. However, the gross margins for direct-to-consumer sales
have a higher marketing cost associated with them. Accordingly, the level
of
product awareness achieved by these direct marketing programs will depend
on the
level of consumer response generated by AeroGrow’s advertisements. The consumer
response, in turn, generates revenues which allow AeroGrow to maintain higher
levels of media expenditures.
AeroGrow
entered into an agreement with Respond2, Inc. to develop and produce one
30-minute infomercial and 60-second television commercials. AeroGrow has
agreed
to pay to Respond2 a creative fee of $15,000 in cash plus $15,000 in shares
of
its common stock valued at $5.00 per share. AeroGrow also agreed to pay to
Respond2 all actual production costs approved by us, currently estimated
at
approximately $400,000, and a profit percentage equal to 33% of the production
costs. AeroGrow currently anticipates that these production costs will be
paid
prior to closing of the Merger. To the extent such costs remain unpaid, AeroGrow
will use a portion of the Offering proceeds to pay these costs. The profit
percentage will be paid in shares of AeroGrow’s common stock valued at 80% of
the then current market price. AeroGrow currently estimate that the total
compensation payable to Respond2 during the term of this agreement will be
approximately $415,000 and AeroGrow will issue an aggregate of 30,000 shares
of
common stock to Respond2 assuming a market price of $5.00 per share during
the
term of the agreement. Prior to closing of the Merger, AeroGrow expects Respond2
to execute a lock-up agreement with restrictions similar to those agreed
to by
KRM Fund.
AeroGrow
intends to launch its products nationally through direct response marketing
channels and to maintain a dedicated e-commerce website. AeroGrow plans to
initially allocate $1.9 million to purchase television time for direct response
advertising, $200,000 to purchase print advertisements in newspapers and
magazines and $50,000 to maintain its website.
Retail
Marketing and Sales.
During
the twelve months of operations following the Merger, AeroGrow plans to expand
the distribution of its products to additional channels including:
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television
shopping networks,
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specialty
retailers including cooking and gourmet, gardening and
housewares.
|
AeroGrow
intends to develop a nationwide network of manufacturer sales representatives
with experience in each of these retail categories to manage sales activities
for these channels. These sales representatives will be independent contractors
compensated by commission based on the sales they generate. Although AeroGrow’s
gross profit margins will be lower when selling through retail channels,
AeroGrow will not incur the relatively higher advertising costs associated
with
its direct response marketing. AeroGrow’s ability to establish and maintain
sales through retail channels will depend on the success of its public relations
and direct marketing campaigns in generating awareness for its products,
the
retailers’ ability and willingness to merchandise its products and consumer
acceptance for its kitchen garden systems. There will be costs associated
with
the development of this sales force, however, AeroGrow has not estimated
an
amount. The reason is that there are many different ways in which to create
a
sales network, some of which are based on compensation solely or primarily
from
commissions. The decisions about the extent and costs will depend on the
development of sales in the early stages. In connection with the creation
of a
network, the company believes it will employ consultants in the house wares
industry to guide the company efforts. The estimate of the consideration
and
expenses to be paid by AeroGrow for these consultants is $40,000 during
2006.
Distribution.
AeroGrow’s
kitchen garden systems will be shipped from its manufacturer in China primarily
via ocean cargo to a fulfillment center in Reno, Nevada. Its seed pods will
be
shipped from its manufacturing facility in Longmont, Colorado, to the
fulfillment center. AeroGrow has contracted with Innotrac Corporation, a
Georgia
corporation, to fulfill, store and ship its products. Innotrac will provide
warehousing, order packing and shipping for the products sold through both
its
direct response channels and retail channels on primarily a variable cost
basis.
The proceeds AeroGrow will pay to Innotrac will depend on the number of units
sold and will be paid from the net profits from sales. Costs for warehousing,
order packing and shipping for the products sold through direct response
channels are estimated to be about $1.50 to $2.00 per units plus actual freight
costs forecasted between $5.00 and $10.00 per order. These costs are included
in
the shipping and handling charge paid by the direct response purchaser. For
retail distribution, the costs for warehousing, order packing and shipping
are
estimated to be between $.50 and $1.00 per unit because of the efficiencies
gained in shipping larger quantities per order. Freight costs will vary
significantly depending upon quantity ordered and destination, but they are
projected to be in the range of 2% to 4% of the sales net of reimbursement
from
customers. Innotrac will also provide payment processing, database management
and customer support services for the direct response sales. These costs
are
projected to be approximately 2.5% of sales for payment processing and 1%
of
sales for customer support, with database management costs included in the
foregoing. The contract with Innotrac is for an initial term of three years,
but
provides for termination by either party on ninety days’ written
notice.
AeroGrow
are negotiating with a telemarketing company to provide operators who will
take
calls from consumers responding to its direct response marketing. These orders
and the orders received on its website will be provided to Innotrac once
each
day to be fulfilled. Telemarketing costs per order are projected at 4% of
direct
response sales.
International
Sales.
Once
AeroGrow has established consumer acceptance of its products in the United
States, it intends to actively seek to establish international distributors
in
key markets in Europe and Asia. Its goal is to partner with successful
distribution companies that possess both direct and retail marketing experience.
These partnerships will most likely be in the form of exclusive distributor
or
licensing agreements tied to performance criteria. AeroGrow anticipates that
such distributors will modify AeroGrow’s marketing and advertising materials
developed for United States’ markets for use in their respective
markets.
Inflation
and Seasonality.
AeroGrow
does not expect inflation to have a significant effect on its operations
in the
foreseeable future. Because its kitchen garden systems are designed for an
indoor gardening experience, it is possible that AeroGrow may experience
slower
sales in the United States during April through September when its consumers
may
tend to garden outdoors. However, AeroGrow currently anticipates increased
sales
during the holiday season in the fourth calendar quarter and in the first
calendar quarter due to additional marketing AeroGrow plans to
undertake.
Research
and Development
During
the year ended December 31, 2004, AeroGrow incurred $333,253 in research
and
development costs. During the year ended December 31, 2003, AeroGrow incurred
$344,164 in research and development costs, and during the year ended December
31, 2005, AeroGrow incurred $577,302 in research and development costs. AeroGrow
initially focused its efforts on determining if an aeroponic product could
be
developed for consumer use in the home at attractive prices. AeroGrow then
focused on developing the design, technology and various prototype models.
In
addition, AeroGrow set up a greenhouse and laboratory to measure the success
of
growing herbs, vegetables and flowers with various seeds, cuttings and nutrients
under different lighting conditions. Finally, AeroGrow filed patent applications
for the technology used in its kitchen garden systems.
In
the
next twelve months AeroGrow intends to continue researching and developing
new
product designs and product extensions including, but not limited to, nutrient
delivery systems and additional seed varieties for its seed kits.
Off-Balance
Sheet Arrangements
AeroGrow
has certain current commitments under operating leases and has not entered
into
any capital leases or contracts for financial derivative instruments such
as
futures, swaps and options.
Critical
Accounting Policies and Estimates
Significant
estimates include valuation of AeroGrow’s non-monetary transactions in
connection with issuances of common stock and common stock warrants and options.
This estimate has had a material or substantial effect upon AeroGrow’s
operations.
RISK
FACTORS
The
business, financial condition and operating results of AeroGrow could be
adversely affected by any of the following factors, in which event the value
of
the equity securities of AeroGrow could decline, and investors could lose
part
or all of their investment. The risks and uncertainties described below are
not
the only ones that the combined company faces. Additional risks and
uncertainties not presently known to management, or that management currently
thinks are immaterial, may also impair future business
operations.
Because
AeroGrow has a limited operating history, AeroGrow may not be able to
successfully manage its business or achieve profitability.
AeroGrow
is a development stage company. AeroGrow has a limited operating history
upon
which you can base your evaluation of its prospects and the potential value
of
its common stock. AeroGrow is just now starting to produce its garden systems
and seed kits. AeroGrow is confronted with the risks inherent in a start-up,
development stage company, including difficulties and delays in connection
with
the production and sales of its kitchen garden systems, operational difficulties
and its potential under-estimation of production and administrative costs.
If
AeroGrow cannot successfully manage its business, AeroGrow may not be able
to
generate future profits and may not be able to support its
operations.
AeroGrow
is in the early stages of its development, has incurred substantial losses
since
inception and may never achieve profitability.
Since
AeroGrow commenced its operations in 2002, AeroGrow has incurred substantial
operating losses. For the year ended December 31, 2005, AeroGrow had a net
loss
of $7,717,577; for the year ended December 31, 2004, AeroGrow had a net loss
of
$2,389,044; and for the year ended December 31, 2003, AeroGrow had a net
loss of $1,159,535. AeroGrow’s losses from operations have resulted in an
accumulated deficit of $11,862,369 at December 31, 2005. AeroGrow expects
that
its operating expenses will outpace revenues for the near future and result
in
continued losses. The success of its business will depend on its ability
to
introduce and sell its kitchen garden systems to consumers, develop new product
extensions and applications and raise additional capital for operations,
future
expanded marketing and further product development. You should consider the
costs and difficulties frequently encountered by companies in their early
stages
of launching a product and establishing a market presence. There is no assurance
that AeroGrow will ever obtain profitability which may lead to the entire
loss
of your investment.
If
AeroGrow’s kitchen garden systems fail to perform properly, its business could
suffer with increased costs and reduced income
.
Although
AeroGrow has been internally testing its products in its laboratories and
with
users for three years, its products may fail to meet consumer expectations.
AeroGrow has had no experience in returns and has not yet determined the
form of
warranties AeroGrow will grant for its products. AeroGrow may be required
to
replace or repair products or refund the purchase price to consumers. Failure
of
AeroGrow’s products to meet expectations could:
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incur
costs related to returns and
repairs,
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delay
market acceptance of its products,
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|
result
in unpaid accounts receivable, and
|
|
·
|
divert
its resources to remedy the
malfunctions.
|
AeroGrow
may need additional capital to fund its growth.
AeroGrow
anticipates that the proceeds from the Offering will be adequate to satisfy
its
capital requirements for the next 12 to 18 months. However, AeroGrow may
require
additional capital to support its growth and cover operational expenses as
AeroGrow expands its marketing and product development. To do this AeroGrow
may
need to issue equity, debt or securities convertible into equity which will
dilute your stock ownership in AeroGrow following the Merger. If AeroGrow
cannot
obtain additional financing on reasonable terms, AeroGrow may not have
sufficient capital to operate its business as planned and would have to modify
its business plan or curtail some or all of its operations.
If
the holders of AeroGrow’s convertible notes choose repayment instead of
conversion or the extension of maturity, AeroGrow will not be able to implement
its full plan of operation.
AeroGrow’s
convertible notes with an aggregate principal amount of $30,000 are repayable
on
demand at any time after June 30, 2006, unless converted into shares of
AeroGrow’s common stock. In addition, $840,000 of principal amount will be
repayable on December 31, 2006 unless converted. If these holders choose
to
demand payment rather than converting their notes to common stock, up $870,000
of principal plus related interest may have to be paid. If such holders choose
not to convert or extend the maturity, AeroGrow would use a portion of the
net
proceeds from the Offering to repay the convertible notes instead of funding
its
full plan of operations and AeroGrow may not be able to maximize revenues
or
profitability.
AeroGrow’s
intellectual property and proprietary rights give it only limited protection
and
can be expensive to defend.
AeroGrow’s
ability to produce and sell kitchen garden systems depends in part on securing
patent protection for the components of its systems, maintaining various
trademarks and protecting its operational trade secrets. To protect its
proprietary technology, AeroGrow relies on a combination of patents pending
(and
if granted, patents), trade secrets and non-disclosure agreements, each of
which
affords only limited protection. AeroGrow owns the rights to thirteen United
States patent applications and one foreign patent application. However, these
patent applications may not result in issued patents and even issued patents
may
be challenged. AeroGrow plans to begin selling its kitchen garden systems
prior
to receiving issued patents relating to its patent applications. All of
AeroGrow’s intellectual property rights may be challenged, invalidated or
circumvented. Claims for infringement may be asserted or prosecuted against
AeroGrow in the future and AeroGrow may not be able to protect its patents,
if
any are obtained, and intellectual property rights against others. AeroGrow’s
former employees or consultants may violate their non-disclosure agreements
with
AeroGrow, leading to a loss of proprietary intellectual property. AeroGrow
also
could incur substantial costs to assert its intellectual property or proprietary
rights against others.
AeroGrow
might not be able to hire and retain personnel with the appropriate experience
and talent to build its sales and marketing capability which will negatively
affect future revenue.
AeroGrow
intends to hire sales and marketing personnel with some of the net proceeds
from
the Offering. If AeroGrow is unable to identify, hire or retain qualified
sales
and marketing personnel, AeroGrow will not be able to achieve future
revenue.
AeroGrow
currently does not have a complete management team and the loss of key members
of its management could adversely affect its business.
AeroGrow
currently does not have a complete management team. Randy Seffren, its chief
marketing officer, and Jerry Gutterman, its chief financial officer, serve
as
consultants or independent contractors rather than as AeroGrow employees.
AeroGrow may not be able to hire qualified managers at budgeted compensation
levels and its current consultants and independent contractors may not continue
to work for AeroGrow. AeroGrow’s business depends on continuing to receive the
services and performance of W. Michael Bissonnette, its chief executive officer,
Mr. Seffren, Mr. Gutterman and other key members of its management team.
AeroGrow does not yet have any life insurance on any of its management team
members. If any of its key persons dies, resigns or becomes unable to continue
in his present role and an adequate replacement is not obtained in a timely
manner, its business operations could be materially adversely affected.
AeroGrow’s officers and directors are also officers and directors of other
companies or serve AeroGrow on a part-time basis, and there is no guarantee
they
will spend substantial portions of their time working for AeroGrow. To the
extent that they devote their time to other endeavors and not to AeroGrow,
its
business could be adversely affected.
AeroGrow’s
future depends on the financial success of its kitchen garden systems. Since
AeroGrow is introducing entirely new products without comparable sales history,
AeroGrow does not know if its kitchen garden systems and seed kits will generate
wide acceptance by consumers.
AeroGrow
is introducing its kitchen garden systems and seed kits as new products to
consumer markets unfamiliar with their use and benefits. AeroGrow does not
know
whether its products will generate widespread acceptance. If consumers do
not
purchase its products, AeroGrow will not be profitable and you may lose all
of
your investment. You must consider AeroGrow’s prospectus in light of the risks,
expenses and challenges of attempting to introduce new products with unknown
consumer acceptance.
AeroGrow’s
marketing strategies may not be successful which would adversely affect its
future revenues and profitability.
AeroGrow’s
revenues and future depend on the successful marketing of its kitchen garden
systems. AeroGrow cannot assure you that consumers will be interested in
purchasing its products. AeroGrow initially plans to use direct marketing
to
sell its products via television commercials, infomercials, magazine and
newspaper advertising and the Internet. Its infomercials and commercials
may not
generate sufficient income to continue to air them. If AeroGrow’s marketing
strategies fail to attract customers, its product sales will not produce
future
revenues sufficient to meet its operating expenses or fund its future
operations. If this occurs, AeroGrow’s business may fail and you may lose your
entire investment.
AeroGrow’s
current or future manufacturers could fail to fulfill AeroGrow’s orders for
kitchen garden systems which would disrupt its business, increase its costs
and
could potentially cause it to lose its market.
AeroGrow
will initially depend on one contract manufacturer in China to produce its
kitchen garden systems. To date AeroGrow has received only limited quantities
of
finished products and does not yet have an operating history that demonstrates
that this manufacturer can produce its kitchen garden systems in a timely
manner
or in sufficient volumes. The manufacturer may also fail to produce the kitchen
garden system to AeroGrow’s specifications or in a workmanlike manner and may
not deliver the systems on a timely basis. AeroGrow is in the process of
identifying other manufacturers in China to assure them of an alternative
source
of supply. Any change in manufacturers could disrupt its business due to
delays
in finding a new manufacturer, providing specifications and testing initial
production. A new manufacturer must also obtain an inventory of necessary
parts
and tools for production. AeroGrow owns the tools used by its Chinese
manufacturer. AeroGrow’s manufacturer operates in a foreign country and may be
subject to business, political, currency and regulatory risks outside the
control of AeroGrow that may affect its ability to fulfill AeroGrow’s orders for
kitchen garden systems.
An
active trading market for AeroGrow’s common stock may not develop or be
sustained.
Depending
on the number of Units sold in the Offering, AeroGrow 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”). However, 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.
If
an
active public trading market does not develop or continue, you may have limited
liquidity and may be forced to hold your shares of AeroGrow’s common stock for
an indefinite period of time. Further, the prices and volume of trading in
AeroGrow’s common stock may be adversely affected if its securities are not
listed or quoted.
The
offering price of AeroGrow’s common stock in connection with the Offering is
arbitrary and as a result the stock price may decline after the Merger.
The
offering price of AeroGrow’s common stock in the Offering was determined by
negotiations between AeroGrow and its Placement Agent and was not based on
any
objective criteria of value. These prices bear no relationship to AeroGrow’s
assets, net worth, book value (loss) per share or net loss. Accordingly,
AeroGrow’s stock price may suffer a decline after the Merger.
If
an exemption from registration on which AeroGrow has relied on for any of
its
past offerings of common stock or warrants were later challenged legally,
its
principals may have to expend time defending claims and AeroGrow would then
risk
paying expenses for defense, rescission and/or regulatory
sanctions.
To
raise
working capital, AeroGrow offered common stock and warrants in private
transactions that AeroGrow believed to be exempt from registration under
the
Securities Act of 1933, as amended, and state securities laws. In 2004 AeroGrow
also conducted a state registered offering in Colorado of common stock and
warrants intended to be exempt from registration under the Securities Act
of
1933, as amended, as an intrastate offering. In the event that one or more
investors seeks rescission, with resulting return of investment funds and
interest at a market rate, or that state or federal regulators seeks sanctions
against AeroGrow or its principals, AeroGrow would spend time and financial
resources, including some of the net proceeds of the Offering, to pay expenses
for defense, rescission awards or regulatory sanctions. The use of funds
would
reduce the capital available to implement its full plan of
operation.
There
may be substantial sales of AeroGrow’s common stock by existing stockholders and
by the selling security holders who purchase shares of AeroGrow’s common stock
in the Offering which could cause the price of AeroGrow’s stock to
fall.
Future
sales of substantial amounts of AeroGrow’s common stock in the public market, if
one develops, or the perception that such sales might occur, could cause
the
market price of its common stock to decline and could impair the value of
your
investment in AeroGrow’s common stock and its ability to raise equity capital in
the future. As of February 24, 2006, after giving effect to the Merger, the
Offering and the Note Conversion, AeroGrow had 8,930,885 shares of common
stock
outstanding, of which 544,228 shares may be sold immediately after the Merger
without restriction. Of the remaining shares, (i) 710,009 shares issued upon
conversion of the Convertible Notes in the principal amount of $2,130,000
at a
conversion price of $3.00 per share will be subject to registration rights
and
are not subject to lock up restrictions, (ii) 2,000,000 shares issued in
the
Offering will be subject to registration rights and are not subject to lock
up
restrictions, (iii) 580,136 shares issued to Wentworth stockholders in the
Merger will have registration rights, but of these shares, 396,813 shares
will
be subject to lock up restrictions for periods of 12 to 18 months, (iv) 757,832
shares were issued during 2005 and are considered “restricted” shares under Rule
144, and (v) 4,338,680 shares have been held more than one year and may be
transferred and sold, subject to the restrictions under Rule 144 or Rule
701
depending on the status of the holder and the holding period. Of the shares
identified in the last two categories above, 4,463,483 shares are subject
to lock-up agreements for periods of 12 to 18 months. The lock up restrictions
may be released by the agreement of AeroGrow and Keating Securities. The
shares
of AeroGrow’s common stock underlying the Convertible Notes and the warrants
issued or to be issued to the holders of Convertible Notes are required to
be
registered for resale by AeroGrow following the Merger and will not be subject
to lock up restrictions. As part of the Offering, AeroGrow has agreed to
register for resale the shares of common stock issued to Investors in the
Offering (together with the shares of common stock underlying the Warrants
issued in this Offering) on a registration statement to be filed with the
SEC.
In the event such registration statement is filed, the shares of common stock
issued to the Wentworth’s stockholders in connection with the Merger will also
be included on such registration statement.
T
here
can
be no assurance that the shares of common stock subject to registration rights
will become registered under the Securities Act. The sales of AeroGrow common
stock by these stockholders having registration rights or even the appearance
that such holders may make such sales once a registration statement becomes
effective may depress any trading market that develops before you are able
to
sell the common stock you receive in the Offering.
AeroGrow’s
outstanding warrants, options and convertible notes, and additional future
obligations to issue AeroGrow securities to various parties, may dilute the
value of your investment and may adversely affect AeroGrow’s ability to raise
additional capital.
As
of
February 24, 2006, after giving effect to the Merger, the Offering and the
Note
Conversion, AeroGrow had committed to issue up to 4,833,634 additional shares
of
common stock under the terms of outstanding convertible notes, warrants,
options
and other arrangements. There are warrants and options outstanding that can
be
exercised for 1,126,128 shares of its common stock at exercise prices ranging
from $0.005 to $15.00 per share. There are 2,000,000 shares of common stock
issuable upon exercise of the warrants issued to Investors in the Offering
exercisable at $6.25 per share. There are also 240,006 shares of common stock
issuable upon conversion of Convertible Notes in the principal amount of
$840,000 at a conversion price of $3.50 by holders who have elected to extend
the maturity of their notes to December 31, 2006 and 7,500 shares of common
stock issuable upon conversion of Convertible Notes in the principal amount
of
$30,000 at a conversion price of $4.00 by holders who have not elected to
extend
the maturity of their notes beyond June 30, 2006. There are 600,000 shares
of
common stock issuable upon exercise of outstanding warrants held by the initial
holders of the Convertible Notes with exercise price of $5.00 per share.
There
are 426,000 shares of common stock issuable upon exercise of warrants, at
an
exercise price of $6.00 per share, that were issued to holders that elected
to
convert notes in the principal amount of $2,130,000. There are 174,000 shares
of
common stock issuable upon the exercise of warrants to be issued upon conversion
of Convertible Notes in the principal amount of $870,000 at an exercise price
of
$6.00 per share. There are 60,000 shares of common stock issuable upon exercise
of outstanding warrants issued in 2005 to Keating Securities or its designees
in
connection with the Convertible Notes offering with exercise price of $6.00
per
share and 200,000 shares of common stock issuable upon exercise of outstanding
warrants issued to Keating Securities in 2006 in connection with the Offering
with an exercise price of $6.25. AeroGrow also has commitments to issue up
to
38,204 shares of common stock under certain equity commitments.
AeroGrow
has historically issued shares of its common stock or granted stock options
to
employees, consultants and vendors as a means to conserve cash, and AeroGrow
will continue to grant additional shares of stock and issue stock options
in the
future. AeroGrow will be able to issue an additional 1,505,000 shares of
common
stock under its 2005 equity compensation plan (less 236,796 shares that were
issued during 2005 under the plan, options to purchase 28,401 shares that
were
granted during 2005 under the plan and remain outstanding, and 38,204 shares
under certain equity commitments that are expected to be issued under the
plan).
For
the
length of time these notes, warrants and options are outstanding, the holders
will have an opportunity to profit from a rise in the market price of AeroGrow’s
common stock without assuming the risks of ownership. This may adversely
affect
the terms upon which AeroGrow can obtain additional capital. The holders
of such
derivative securities would likely exercise or convert them at a time when
AeroGrow would be able to obtain equity capital on terms more favorable than
the
exercise or conversion prices provided by the notes, warrants or
options.
If
AeroGrow’s common stock is traded, AeroGrow expects to be subject to the “penny
stock” rules for the foreseeable future.
AeroGrow’s
articles of incorporation authorize the issuance of shares of preferred stock,
the rights, preferences, designations and limitations of which may be set
by the
board of directors.
AeroGrow’s
articles of incorporation have authorized issuance of up to 20,000,000 shares
of
preferred stock (“Preferred Stock”) in the discretion of its board of directors.
Any undesignated shares of Preferred Stock may be issued by AeroGrow’s board of
directors; no further shareholder action is required. If issued, the rights,
preferences, designations and limitations of such Preferred Stock would be
set
by the board of directors and could operate to the disadvantage of the
outstanding common stock. Such terms could include, among others, preferences
as
to dividends and distributions on liquidation, or could be used to prevent
possible corporate takeovers.
SECURITY
OWNERSHIP OF
CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding AeroGrow common
stock
beneficially owned on February 24, 2006, after giving effect to the Merger,
the
Offering, and the Note Conversion for (i) each stockholder known to be the
beneficial owner of 5% or more of the outstanding common stock, (ii) each
current executive officer and director, and (iii) all executive officers
and
directors as a group. The table assumes a total of 8,930,885 shares of common
stock outstanding.
|
Name
of Beneficial Owner (1)
|
Amount
of Beneficial Ownership
|
Percent
Beneficial Ownership
|
|
W. Michael Bissonnette
900
28th Street, Suite 201
Boulder,
CO 80303
|
956,297
|
10.7%
|
|
Mitch
Rubin
900
28th Street, Suite 201
Boulder,
CO 80303
(2)
|
3,768
|
*
|
|
Richard A. Kranitz
1238
Twelfth Avenue
Grafton,
WI 53024 (3)
|
55,079
|
*
|
|
Randy Seffren
900
28th Street, Suite 201
Boulder,
CO 80303
|
74,320
|
*
|
|
Wayne Harding
5206
South Hanover Way
Englewood,
CO 80111 (4)
|
132,173
|
1.5%
|
|
Jack J. Walker
c/o 900 28
th
Street, Suite 201
Boulder, CO 80303(5)
|
164,408
|
1.8%
|
|
Kenneth Leung
c/o 900 28
th
Street, Suite 201
Boulder, CO 80303
|
-0-
|
*
|
|
All AeroGrow Executive Officers and Directors as a Group (5 Persons)
(6)
|
1,386,045
|
15.4%
|
|
Timothy
J. Keating
5251
DTC Parkway, Suite 1090
Greenwood
Village, Colorado 80111 (7)
|
441,813
|
4.9%
|
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the Securities
and
Exchange Commission (“SEC”), which include holding voting and investment
power with respect to the securities. Shares of common stock subject
to
options or warrants currently exercisable, or exercisable within
60 days,
are deemed outstanding for computing the percentage of the total
number of
shares beneficially owned by the designated person, but are not
deemed
outstanding for computing the percentage for any other
person.
|
|
(2)
|
Includes
options to purchase 3,768 shares of AeroGrow’s common stock at an exercise
price of $0.50 per share.
|
|
(3)
|
Includes
46,546 shares owned by Cedar Creek Ventures, LLC, of which Mr.
Kranitz is
a 50% owner and managing member.
|
|
(4)
|
Includes
options to purchase 3,910 shares of AeroGrow’s common stock at an exercise
price of $2.50 per share, and warrants to purchase 5,000 shares
of
AeroGrow’s common stock at an exercise price of $2.50 per share.
|
|
(5)
|
Includes
96,122 shares held of record by March Trade & Finance, Inc. of which
Mr. Walker is a controlling person and 24,000 shares underlying
immediately exercisable warrants at $5.00 per share and 34,286
shares
issuable under a convertible note in principal amount of
$120,000.
|
|
(6)
|
Includes
options and warrants to acquire 36,678 shares of common stock and
34,286
shares issuable on conversion of an outstanding
note.
|
|
(7)
|
Includes
warrants to purchase 20,000 shares of common stock at an exercise
price of
$6.00 per share and warrants to purchase 25,000 shares of common
stock at
an exercise price of $6.25 per share. Includes 309,406 shares of
common
stock held by KRM Fund. Timothy J. Keating is the manager of KRM
Fund and
has voting and disposition power of the shares owned by KRM Fund.
Includes
87,407 shares of common stock held by Keating Investments, LLC.
Timothy J.
Keating is the managing member of Keating Investments and has voting
and
disposition power of the shares owned by Keating Investments, LLC.
|
DESCRIPTION
OF SECURITIES
General
AeroGrow’s
articles of incorporation provide that it is authorized to issue up to
75,000,000 shares of common stock, par value $0.001 per share, and 20,000,000
shares of preferred stock, par value $0.001 per share. As of February 24,
2006,
after giving effect to the Merger, the Offering and the Note Conversion,
AeroGrow had 8,930,885 shares of common stock outstanding. No shares of
preferred stock were issued and outstanding. Nevada law allows AeroGrow board
of
directors to issue shares of common stock and preferred stock up to the total
amount of authorized shares without obtaining the prior approval of
shareholders.
The
following description of AeroGrow’s common stock, preferred stock, convertible
notes and various warrants summarizes the material provisions of each and
is
qualified in its entirety by the provisions of AeroGrow’s articles of
incorporation, bylaws, convertible notes and warrant agreements, copies of
which
will be provided by us upon request.
Common
Stock
Holders
of AeroGrow’s outstanding common stock, have the following rights and privileges
in general:
|
·
|
the
right to one vote for each share held of record on all matters
submitted
to a vote of the stockholders, including the election of
directors,
|
|
·
|
no
cumulative voting rights, which means that holders of a majority
of shares
outstanding can elect all of AeroGrow’s
directors,
|
|
·
|
the
right to receive ratably dividends when, if and as may be declared
by
AeroGrow’s board of directors out of funds legally available for such
purposes, subject to the senior rights of any holders of preferred
stock
then outstanding,
|
|
·
|
the
right to share ratably in the net assets legally available for
distribution to common stockholders after the payment of AeroGrow’s
liabilities on its liquidation, dissolution and winding-up,
and
|
|
·
|
no
preemptive or conversion rights or other subscription rights, and
no
redemption privileges.
|
All
outstanding shares of AeroGrow’s common stock are fully paid and
nonassessable.
Preferred
Stock
AeroGrow’s
preferred stock may be issued from time to time by its board of directors,
without further action by its stockholders, in one or more series. The board
can
fix the relative designations, preferences, priorities, powers and other
special
rights for each series of preferred stock.
AeroGrow
believes that the preferred stock will provide it with increased flexibility
in
structuring possible future financings and acquisitions and in meeting other
corporate needs that might arise. Although AeroGrow’s board of directors
currently has no intention to issue preferred stock, in the event of any
issuance, its common stockholders will not have any preemptive or similar
rights
to acquire any of the preferred stock. Issuances of preferred stock
could:
|
·
|
dilute
the voting power of common
stockholders,
|
|
·
|
adversely
affect the voting power of common
stockholders,
|
|
·
|
adversely
affect the likelihood that common stockholders will receive dividend
payments and payments on liquidation,
and
|
|
·
|
have
the effect of delaying or preventing a change in shareholder and
management control.
|
Debt
Warrants
In
June,
July, August and September 2005, AeroGrow sold in a private placement debt
offering to accredited investors 300 units consisting of convertible notes,
described below, and its redeemable warrants. The warrants are exercisable
for
the purchase of an aggregate 600,000 shares of its common stock, assuming
an
exercise price of $5.00 per share.
The
warrants are exercisable in whole at any time or in part from time to time
prior
to September 13, 2010, at an exercise price of $5.01 per share. Upon the
expiration of the warrant exercise period, unless extended, each warrant
will
expire and become void and of no value.
The
holder of each warrant is entitled, upon payment of the exercise price, to
purchase one share of AeroGrow’s common stock. The number and kind of securities
or other property for which the warrants are exercisable are subject to
adjustments in certain events such as mergers, reorganizations or stock splits,
to prevent dilution. AeroGrow may redeem the warrants at any time on fifteen
days’ prior written notice at a redemption price of $0.0001 per share of common
stock underlying the warrant, provided an effective registration statement
is in
effect covering the common shares underlying the warrant, and further provided
that for a period of not less than twenty consecutive trading days the closing
bid price as quoted on the Nasdaq Capital Market or NASD OTC Bulletin Board
has
been at least $7.50 per share of common stock and the average daily trading
volume exceeds 50,000 shares per day. All of the outstanding warrants must
be
redeemed if any are redeemed. The holders of the warrants will not possess
the
rights that AeroGrow’s shareholders have unless and until the holders exercise
the warrants and then only as a holder of the common stock.
The
shares of common stock underlying the redeemable 2005 warrants have registration
rights. See “Registration Rights” below.
See
“Convertible Note Modification Agreement” below.
Convertible
Notes and Conversion Warrants
AeroGrow
issued $3,000,000 in aggregate principal face amount of 10% unsecured
convertible notes as part of its debt offering in June, July, August and
September 2005 along with the debt warrants described above. The principal
amount is convertible into its common stock at the option of the note holders,
at any time, at a conversion price equal to $4.00 per share. Assuming a
conversion price of $4.00 per share AeroGrow would issue 750,000 shares of
common stock if all notes are converted. If not converted, these notes and
all
accrued interest are repayable on demand by the note holders at any time
after
June 30, 2006. The notes bear interest at the rate of 10% annually which
is
payable quarterly beginning September 30, 2005. The principal is due on June
30,
2006. AeroGrow may not prepay the notes without the holder’s prior
consent.
On
conversion of the notes each holder shall also receive five-year warrants
to
purchase 2,000 shares of common stock for each $10,000 principal amount
converted. These conversion warrants may be exercised at any time at an exercise
price equal to $6.00 per share. AeroGrow may not redeem these conversion
warrants.
The
shares of common stock underlying the convertible notes and the conversion
warrants have registration rights. See “Registration Rights” below.
See
“Convertible Note Modification Agreement” below.
Placement
Agent Warrants
In
connection with its services as placement agent for AeroGrow’s 2005 debt
offering of units consisting of convertible notes and redeemable warrants,
AeroGrow agreed to sell to Keating Securities five-year warrants to purchase
60,000 shares of AeroGrow’s common stock. These warrants will be exercisable at
any time after September 13, 2006, at a price equal to $6.00 per share on
a
net-issuance or cashless basis.
In
connection with the Offering consummated February 24, 2006, the Placement
Agent
or its designees for nominal consideration, received non-redeemable, five-year
warrants to purchase an aggregate of 200,000 shares of common stock. These
Placement Agent warrants are exercisable at any time from February 24, 2006
until February 24, 2011, at a price equal to $6.25 per share, either for
cash or
on a net-issuance or cashless basis. The shares of common stock underlying
the
Agent Warrants have registration rights.
The
shares of common stock underlying the above placement agent warrants have
registration rights. See “Registration Rights” below.
$10.00
Redeemable Warrants and $15.00 Redeemable Warrants
In
2004
AeroGrow completed a Colorado registered offering of 544,228 shares of its
common stock, redeemable warrants to purchase 390,880 shares of its common
stock
at an exercise price of $10.00 and redeemable warrants to purchase 390,880
shares of its common stock at an exercise price of $15.00. The $10.00 redeemable
warrants and $15.00 redeemable warrants became exercisable on July 1, 2005,
provided that at least 100 shares must be purchased on each exercise. These
warrants expire on December 31, 2007.
AeroGrow
may redeem all of these warrants at any time after its common stock is quoted
on
the OTC BB or a recognized exchange on fifteen days’ prior written notice at a
redemption price of $0.05 per share, provided that the closing bid or sale
price
of its common stock exceeds $12.50 per share for the $10.00 redeemable warrants
and $17.50 per share for the $15.00 redeemable warrants for 20 consecutive
trading days ending within 15 days of the date the notice of redemption is
given.
$5.00
Non-Redeemable Warrants, $2.50 Non-Redeemable Warrants and $1.25 Non-Redeemable
Warrants
From
December 2002 through July 2004 AeroGrow sold in a private placement:
|
·
|
$5.00
non-redeemable warrants to purchase 30,000 shares of its common
stock at
an exercise price of $5.00 per share. As of January 31, 2006, warrants
to
purchase 5,000 shares have been exercised and warrants to purchase
25,000
have expired.
|
|
·
|
$2.50
non-redeemable warrants to purchase 501,098 shares of its common
stock at
an exercise price of $2.50 per share. As of January 31, 2006, warrants
to
purchase 390,000 shares have been exercised and warrants to purchase
111,098 shares remain outstanding and are exercisable during
2006.
|
|
·
|
$1.25
non-redeemable warrants to purchase 170,000 shares of its common
stock at
an exercise price of $1.25 per share. As of January 31, 2006, all
of these
warrants were exercised.
|
Stock
Options
AeroGrow
has outstanding options to purchase 233,270 shares of AeroGrow common stock
at
an exercise price ranging from $0.005 to $5.00 per share.
2006
Warrants
Each
Warrant issued in the Offering consummated February 24, 2006 is non-redeemable
and is exercisable for one share of common stock at an exercise price of
$6.25
per share. Each Warrant is exercisable for until February 24, 2011. The exercise
price and number of shares of common stock under the Warrant will be subject
to
adjustment on certain events, including reverse stock splits, stock dividends
and recapitalizations, combinations, and mergers where AeroGrow is not the
surviving company. AeroGrow will at all times reserve and keep available,
solely
for issuance and delivery upon the exercise of the Warrants, such shares
of
common stock underlying the Warrants (“Underlying common stock”), as from time
to time shall be issuable upon the exercise of the Warrants.
The
shares of the Underlying common stock have registration rights. See
“Registration Rights” below.
Convertible
Note Modification Agreement
In
connection with the Merger, AeroGrow sought to modify the terms of certain
outstanding convertible notes issued in 2005 with an outstanding principal
balance of $3,000,000 due June 30, 2006 (“Convertible Notes”). The note holders
of this debt were offered the opportunity to convert the principal and interest
at a reduced conversion rate, extend the maturity for a lesser reduced
conversion rate than immediate conversion or maintain the current terms
unchanged.
The
holders of Convertible Notes representing $2,130,000 in principal amount
have
converted their notes into AeroGrow common stock at a conversion price of
$3.00
per share, a reduction from the original conversion price of $4.00 per share.
Accordingly, at the closing of the Merger and Offering, AeroGrow issued 710,009
shares of its common stock to converting note holders (rounded up for fractional
shares). The converting note holders also were issued, pursuant to the terms
of
the note offering, five-year warrants to purchase 426,000 shares of AeroGrow’s
common stock at an exercise price of $6.00 per share. Holders of Convertible
Notes representing $840,000 in principal amount have agreed to extend the
maturity under their notes from June 30, 2006 to December 31, 2006 in exchange
for a reduction in their conversion price from $4.00 per share to $3.50 per
share.
The
remaining holders of Convertible Notes representing $30,000 in principal
amount
have not elected to convert or extend the maturity of their notes and will
be
able to demand payment in cash on June 30, 2006.
For
those
Convertible Note holders who elected to convert or extend the maturity of
their
notes as described above, (i) AeroGrow eliminated the current 180 day lock-up
provisions on the shares of common stock underlying the Convertible Notes
and
related warrants; (ii) AeroGrow eliminated the redemption provisions of the
$5.00 warrants issued to holders at the time of the issuance of the notes;
and
(iii) holders waived any registration penalties that they may have in connection
with any late filing or effectiveness under the registration rights provisions
of their original subscription for the notes
.
As
of
February 24, 2006, the Convertible Notes and the warrants issued or to be
issued
to convertible note holders can be summarized as follows:
|
·
|
710,009
shares of common stock were issued at the Closing of the Offering
to
holders of Convertible Notes in the principal amount of $2,130,000
who
have elected to convert such notes at $3.00 per share;
|
|
·
|
240,006
shares of common stock will be issuable upon conversion of Convertible
Notes (rounded up for fractional shares) in the principal amount
of
$840,000 at a conversion price of $3.50 by holders who have elected
to
extend the maturity of their notes to December 31,
2006;
|
|
·
|
7,500
shares of common stock will be issuable upon conversion of Convertible
Notes in the principal amount of $30,000 at a conversion price
of $4.00 by
holders who have not elected to extend the maturity of their notes
beyond
June 30, 2006;
|
|
·
|
600,000
shares of common stock will be issuable upon exercise of outstanding
warrants held by the initial holders of the Convertible Notes with
exercise price of $5.00 per share, of which 6,000 warrants held
by those
not electing to extend the maturity of their Convertible Notes
to December
31, 2006 are redeemable;
|
|
·
|
426,000
shares of common stock issuable upon exercise of warrants, at an
exercise
price of $6.00 per share, that were issued to holders that elected
to
convert notes in the principal amount of $2,130,000;
and
|
|
·
|
174,000
shares of common stock issuable upon the exercise of warrants to
be issued
upon conversion of Convertible Notes in the principal amount of
$870,000
at an exercise price of $6.00 per
share;
|
Registration
Rights
AeroGrow
has agreed to register: (i) 2,000,000 shares of common stock issued to Investors
in the Offering consummated February 24, 2006; (ii) 2,000,000 shares of common
stock underlying the Warrants issued to Investors in the Offering consummated
February 24, 2006; and (iii) 200,000 shares of common stock underlying the
warrants issued to the Placement Agent in the Offering consummated February
24,
2006, on a registration statement to be filed by AeroGrow (“Registration
Statement”). AeroGrow has agreed to file the Registration Statement within 45
days following the closing of this Offering, February 24, 2006 (“Closing”), and
will use its best efforts to have the Registration Statement declared effective
within 150 days after the Closing. AeroGrow shall pay the usual costs of
such
registration. The Registration Statement also will include : (i) 710,009
shares
of common stock issued to holders of Convertible Notes in the principal amount
of $2,130,000 who have elected to convert such notes at $3.00 per share;
(ii)
240,006 shares of common stock issuable upon conversion of Convertible Notes
in
the principal amount of $840,000 at a conversion price of $3.50 by holders
who
have elected to extend the maturity of their notes to December 31, 2006;
(iii)
7,500 shares of common stock issuable upon conversion of Convertible Notes
in
the principal amount of $30,000 at a conversion price of $4.00 by holders
who
have not elected to extend the maturity of their notes beyond June 30, 2006;
(iv) 600,000 shares of common stock underlying warrants, at an exercise price
of
$5.00 per share, held by the holders of the Convertible Notes (“Debt Warrants”);
(v) 426,000 shares of common stock underlying warrants, at an exercise price
of
$6.00 per share, held by holders that have elected to convert their Convertible
Notes in the principal amount of $2,130,000, and 174,000 shares of common
stock
underlying warrants, at an exercise price of $6.00 per share, to be issued
upon
conversion of Convertible Notes in the principal amount of $870,000 at an
exercise price of $6.00 per share (collectively, the “Conversion Warrants”);
(vi) 60,000 shares of common stock underlying warrants, at an exercise price
of
$6.00 per share, issued to the Placement Agent or its designees in connection
with the Convertible Notes offering (“Agent Debt Warrants”); and (vii) up to
580,136 shares of common stock issued to Wentworth stockholders in the Merger
who comply with the terms of the Merger Agreement for inclusion on the
registration statement. If any additional securities are sold in the Offering
or
issued in connection with the Offering, they will be sold with the same
registration rights as those granted in connection with the
Offering.
If
the
Registration Statement is not filed or does not become effective on a timely
basis, for any reason, AeroGrow will be required to pay the Investors in
the
Offering and the investors in the Convertible Note offering an amount equal
to
1% of the purchase price of the securities held by them 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”).
After
the
effectiveness of the Registration Statement, AeroGrow shall also be required
to
pay Investors in the Offering and the investors in the Convertible Note offering
an amount equal to 1% of the purchase price of the securities held by them
for
every 30 day period that the registration statement is not available for
use to
sell or transfer the registered shares (“Suspension Penalty”). This Suspension
Penalty shall be in addition to any other penalties mentioned.
The
Registration Penalty and/or Suspension Penalty (the “Penalties”) shall be due
and payable only to the Investors in this Offering and investors in the
Convertible Note offering. Payment of the Penalties in the circumstances
of a
registration statement not being filed or declared effective by designated
dates
will be made in shares of common stock calculated by taking the amount due
and
dividing it by $2.00 (“Penalty Shares”). The Penalty Shares will be included in
the registration statement. Payment of the Penalties that may be due after
the
effective date of the registration statement will be paid in cash. The Penalty
amount is 1% per month of the purchase price paid for the securities payable
for
up to a maximum of an aggregate of 18 months.
T
here
can
be no assurance that the shares of common stock subject to registration rights
as specified above will become registered under the Securities Act.
Lock
Up Agreements
Stockholders
of Wentworth holding an aggregate of 396,813 shares of common stock entered
into
a lock up agreement under which they will be prohibited from selling or
otherwise transferring: (i) any of their shares of common stock for a period
of
twelve months (12) months following the effective date of the Registration
Statement (“Initial Lock Up Period”), and (ii) fifty percent (50%) of its shares
of common stock after the expiration of Initial Lock Up Period until the
date
which is eighteen (18) months after the effective date of the Registration
Statement.
Further,
as a condition of the closing of the Merger Agreement, 4,463,483 shares of
AeroGrow’s common stock held by existing AeroGrow stockholders (including all
shares of AeroGrow held by AeroGrow’s current officers and directors discussed
elsewhere in this Report) and 927,406 shares of common stock underlying
AeroGrow’s existing warrants and options outstanding will be subject to a lock
up agreement with the same transfer restrictions as set forth above and
applicable to the stockholders of Wentworth.
Immediately
after the closing of the Merger and the Offering, the following shares of
common
stock (or shares of common stock underlying warrants and options) will not
be
subject to any lock up agreement restrictions:
|
·
|
Approximately
544,228 shares of common stock held by investors in AeroGrow’s Colorado
intrastate offering (“Colorado Offering Shares”). The Colorado Offering
Shares will be freely tradable without restriction and will represent
AeroGrow’s “float” following the
Merger.
|
|
·
|
633,029 shares
of outstanding common stock held by existing AeroGrow stockholders.
These
shares of common stock may be freely tradable without restriction
following the Offering depending on how long the holders thereof
have held
these shares depending on the requirements of Rules 144 and 701.
|
|
·
|
155,000 shares
of common stock underlying existing warrants, and 43,722 shares of
common stock underlying outstanding options issued to employees,
consultants and vendors. Upon exercise of these warrants by the
holders
thereof, the shares will be restricted shares subject to the restrictions
on transfer imposed under Rule 144 and Rule 701 promulgated under
the
Securities Act, which have different holding periods and volume
limitations depending on the status of the holder and the time
period that
the holder has held the securities.
|
|
·
|
None
of the shares of common stock issued in the Offering, issued upon
conversion of the Convertible Notes, underlying the warrants issued
in
this Offering (including Agent Warrants), underlying the Convertible
Notes, or underlying the warrants issued or to be issued to Convertible
Note holders (including placement agent warrants) are subject to
lock up
restrictions.
|
|
·
|
183,323
shares of common stock held by Wentworth stockholders will not
be subject
to lock up restrictions.
|
Dividend
Policy
AeroGrow
has not declared or paid any cash dividends on its common stock. It intends
to
retain any future earnings to finance the growth and development of its
business, and therefore it does not anticipate paying any cash dividends
on the
common stock in the future. The board of directors will determine any future
payment of cash dividends depending on the financial condition, results of
operations, capital requirements, general business condition and other relevant
factors. If the company issues preferred shares, although not currently
anticipated, no dividends may be paid on the outstanding common stock until
all
dividends then due on the outstanding preferred stock will have been
paid.
Transfer
Agent and Registrar
AeroGrow
has appointed Corporate Stock Transfer, Denver, Colorado, as its registrar
and
transfer agent and registrar of its common stock. The mailing address of
Corporate Stock Transfer is 3200 Cherry Creek South Drive, Denver, Colorado
80209-3246.
Limitation
of Director Liability; Indemnification
Under
Nevada law and the AeroGrow’s bylaws, AeroGrow is required to indemnify its
officers, directors, employees and agents in certain situations. In some
instances, a court must approve indemnification. As permitted by Nevada
statutes, the articles of incorporation eliminate in certain circumstances
the
monetary liability of its directors for a breach of their fiduciary duties.
These provisions do not eliminate a director’s liability for:
|
·
|
a
willful failure to deal fairly with us or our shareholders in connection
with a matter in which the director has a material conflict of
interest,
|
|
·
|
a
violation of criminal law unless the director had reasonable cause
to
believe that his or her conduct was lawful or no reasonable cause
to
believe that his or her conduct was
unlawful,
|
|
·
|
a
transaction from which the director derived an improper personal
profit,
and
|
As
to
indemnification for liabilities arising under the Securities Act for directors,
officers or persons controlling the company, we have been informed that,
in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy and therefore unenforceable.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The
following transactions were or will be entered into with our executive officers,
directors and 5% or greater shareholders. These transactions may or will
continue in effect and may result in conflicts of interest between us and
these
individuals. Although our executive officers and directors have fiduciary
duties
to us and our shareholders, we cannot assure that these conflicts of interest
will always be resolved in our favor or in the favor of our
shareholders.
Stock
Grants
AeroGrow
granted to our founder, W. Michael Bissonnette, 10,000 shares of common stock
from December 2002 through September 30, 2005, with a weighted value of $3.87
per share or $38,700 in the aggregate, as partial payment for services provided
since inception. In December 2002, Mr. Bissonnette purchased 50,000 shares
of
our common stock for $0.50 per share, or $25,000 in the aggregate, in one
of our
private offerings. We granted Mr. Bissonnette 2,000 shares for serving as
our
chairman of the board during 2005 under our 2005 plan on December 31,
2005.
AeroGrow
granted to its former chief financial officer and secretary, Jerry Gutterman,
11,425 shares of our stock from December 2002 through September 30, 2005,
with a
weighted value of $2.69 per share, or $30,725 in the aggregate, as partial
payment for services provided since inception. AeroGrow granted
Mr. Gutterman 25,110 shares under our 2005 plan on December 31,
2005.
AeroGrow
granted to the current chief financial officer, Mitchell Rubin, 1,366 stock
options at an exercise price of $0.50 per share under the 2003 and 2,402
stock
options at an exercise price of $0.50 per shares under the 2005
Plan.
Richard
Kranitz, one of our directors, is a member of the law firm of Kranitz and
Philipp which provides legal services to AeroGrow. In 2004 Kranitz and Philipp
was paid $24,000 and received 100,000 shares of stock and in 2003 the firm
was
paid $25,000 for legal services performed on our behalf. From January 1 through
July 31, 2005, Kranitz and Philipp has been paid $14,000 for legal services
performed. In the future, Kranitz and Philipp may perform additional legal
services on our behalf on an as-needed basis at hourly rates based on the
type
of legal services provided.
AeroGrow
granted to our chief marketing officer, Randy Seffren, 45,800 shares of our
common stock in 2004 and 2005 with a value of $5.00 per share, or $229,000
in
the aggregate, as partial payment for services provided since inception.
AeroGrow granted Mr. Seffren 28,520 shares under our 2005 plan on December
31,
2005.
Wayne
Harding, one of our directors, provided consulting services for AeroGrow
from
December 2003 through March 2004. He received stock options for 3,910 shares
of
common stock with an exercise price of $2.50 per share.
Mentor
Capital
Mentor
Capital Consultants, Inc. was formerly our parent corporation. Mr. Bissonnette
is the principal shareholder and chief executive officer of Mentor Capital.
Mr.
Gutterman is the chief financial officer, secretary and a director of Mentor
Capital. Mr. Kranitz is a director of Mentor Capital.
On
October 15, 2002, Mr. Bissonnette exchanged 1 million shares of Mentor
Capital’s
common stock for 3 million common shares of our common stock, not taking
into
account the one-for-five reverse stock split to shareholders of record
on May
31, 2005. We valued this transaction as $300,000 of compensation expense
to Mr.
Bissonnette to account for the fair value of Company stock he received
in the
exchange transactions. The $300,000 was treated as a compensation
expense.
On
December 31, 2004, Mentor Capital made a pro rata liquidating distribution
to
its shareholders of all 6,000,000 shares of our common stock held by it.
These
shares were issued with the restriction with AeroGrow that 25% may be sold
beginning six months after a public offering, 25% may be sold beginning one
year
after a public offering, 25% may be sold beginning 18 months after a public
offering and the remaining 25% may be sold beginning 24 months after a public
offering. In addition, these shareholders will be required to execute prior
to
closing of this offering, pursuant to the requirements of the underwriters,
a
lock-up agreement which will restrict their sale for one year following this
offering.
From
inception until May 31, 2005, we leased from Mentor Capital our furniture,
computers and other office equipment for a rental payment of $2,500 per month.
For each of the years ended December 31, 2004 and 2003, we paid $30,000 to
rent the equipment. This lease was terminated as of May 31, 2005. From January
through April 2005 we made interest-free unsecured loans totaling $41,000
to
Mentor Capital to allow Mentor Capital to redeem some of its stock from a
shareholder who is not affiliated with AeroGrow. The lease payments for the
furniture of $2,500 per month were being used to offset a portion of this
loan.
We acquired the fixed assets under the furniture lease in full payment of
the
loan on May 31, 2005.
Mentor
Capital entered into a research and development contract in 2002 with AgriHouse,
Inc. which provided for development of a nutrient delivery system using
proprietary aeroponic technology that could be used in a low cost consumer
product. If a product was developed, Mentor Capital was granted the exclusive
worldwide marketing rights for it, subject to the duty to pay a royalty to
AgriHouse of 10% of the manufacturing cost of each unit. Mentor Capital assigned
its rights under this contract to AeroGrow shortly after AeroGrow was formed
and
AeroGrow agreed to assume the royalty payment obligations. Subsequently,
we
developed a fractionator bar technology, applied for two patents and were
granted one patent. We decided to abandon this technology and pursue other
approaches to produce a low-cost consumer product. In May 2005 we entered
into a
new product research and development agreement with AgriHouse and Mentor
Capital
which superseded and terminated the 2002 agreement. We returned related
ownership and manufacturing rights to AgriHouse, along with two related patents,
drawings, molds and other materials. We also paid AgriHouse $25,000 in cash.
The
2005 agreement provides for the collaboration of AeroGrow and AgriHouse on
developing an aeroponic product using our fractionator bar
technology.
Item
9.01
Financial
Statements and Exhibits.
|
|
(a)
|
Financial
statements of business acquired
.
|
Audited
Financial Statements of AeroGrow for the years ended
December 31, 2005 and 2004 and for the period from inception (March
25, 2002) to
December 31, 2005.
|
|
(b)
|
Pro
forma financial statements of business acquired
.
|
Pro
forma
Financial Statements for AeroGrow giving effect the Merger, the Offering
and the
note conversions as of December 31, 2005 and for the year ended December
31,
2005.
|
|
3.1
|
Amended
and Restated Articles of Incorporation of the
Registrant*
|
|
|
3.2
|
Certificate
of Amendment to Articles of Incorporation, dated February 24, 2006
(Change
of Name)*
|
|
|
3.3
|
Amended
Bylaws of the Registrant*
|
|
|
4.1
|
Form
of Certificate of Common Stock of
Registrant*
|
|
|
4.2
|
Form
of 2005 Warrant*
|
|
|
4.3
|
Form
of 2006 Warrant*
|
|
|
4.4
|
Form
of 10% Convertible Note*
|
|
|
4.5
|
Form
of $10.00 Redeemable Warrant*
|
|
|
4.6
|
Form
of $15.00 Redeemable Warrant*
|
|
|
4.7
|
Form
of Conversion Warrant*
|
|
|
4.8
|
Form
of 2005 Placement Agent Warrant *
|
|
|
4.9
|
Form
of 2006 Placement Agent Warrant*
|
|
|
4.10
|
Form
of $2.50 Warrant*
|
|
|
4.11
|
Form
of $5.00 Warrant*
|
|
|
10.1
|
Lease
Agreement between AeroGrow and United Professional Management,
Inc. dated
October 1, 2003, as amended by a Lease Amendment dated April 1, 2005,
and a Lease Amendment dated October 7,
2003*
|
|
|
10.2
|
Amended
2003 Stock Option Plan*
|
|
|
10.3
|
Form
of Stock Option Agreement relating to the 2003 Stock Option
Plan*
|
|
|
10.4
|
2005
Equity Compensation Plan*
|
|
|
10.5
|
Form
of Stock Option Agreement relating to the 2005 Equity Compensation
Plan*
|
|
|
10.6
|
Form
of Restricted Stock Grant Agreement relating to the 2005 Equity
Compensation Plan*
|
|
|
10.7
|
Form
of Lock-up Agreement for certain
investors*
|
|
|
10.8
|
Placement
Agent Agreement between Keating Securities and AeroGrow dated May
27, 2005
with respect to the Convertible Note
offering*
|
|
|
10.9
|
Placement
Agent Agreement between Keating Securities and AeroGrow dated February
6,
2006 with respect to the Offering*
|
|
|
10.10
|
Business
Lease dated December 8, 2004, between AeroGrow and Investors Independent
Trust Company*
|
|
|
10.11
|
Consulting
Arrangement between Randy Seffren and AeroGrow dated October 13,
2004*
|
|
|
10.12
|
Contract
between AeroGrow and Innotrac Corporation dated October 7,
2005*
|
|
|
10.13
|
Letter
of Agreement dated September 30, 2005, between AeroGrow and Kenneth
Dubach*
|
|
|
10.14
|
Consulting
Agreement between AeroGrow and Jerry Gutterman dated May 16,
2005*
|
|
|
10.15
|
Manufacturing
Agreement among Mingkeda Industries Co., LTD., Source Plus, Inc.
and
AeroGrow dated September 30, 2005*
|
|
|
10.16
|
Form
of Subscription Agreement relating to the issuance of our convertible
notes and redeemable 2005 warrants*
|
|
|
10.17
|
Form
of Assignment of Application Agreement between AeroGrow and our
executives, employees and
consultants*
|
|
|
10.18
|
Form
of Non-disclosure Agreement between AeroGrow and our executives,
employees
and consultants*
|
|
|
10.19
|
Form
of Statement of Confidentiality, Non-Disclosure and Non-Compete
Agreement
between AeroGrow and our employees, consultants and other third-party
contractors*
|
|
|
10.20
|
Letter
agreement dated July 15, 2005 between AeroGrow and Patrice Tanaka
&
Company*
|
|
|
10.21
|
Production
Agreement dated October 3, 2005, between AeroGrow and Respond2,
Inc.*
|
|
|
10.22
|
Form
of Subscription Agreement relating to offering consummated February
24,
2006 for the sale of common stock and
warrants*
|
|
|
10.23
|
Employment
Agreement between AeroGrow and W. Michael Bissonnette*
|
|
|
10.24
|
Employment
Agreement between AeroGrow and Mitchell Rubin*
|
__________________________
*
Filed
herewith
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, AeroGrow
International, Inc. has duly caused this report to be signed on its behalf
by
the undersigned hereunto duly authorized.
|
|
|
|
|
|
AeroGrow
International, Inc.
|
|
|
|
|
Date: March
2, 2006
|
By:
|
/s/ W.
Michael Bissonnette
|
|
|
W.
Michael Bissonnette, CEO
|
|
|
|
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
INDEX
TO FINANCIAL STATEMENTS
Page
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
|
|
Balance
Sheets
|
F-2
|
|
|
|
|
Statements
of Operations
|
F-3
|
|
|
|
|
Statement
of Stockholders' Equity (Deficit)
|
F-4
|
|
|
|
|
Statements
of Cash Flows
|
F-5
|
|
|
|
|
Notes
to Financial Statements
|
F-6
-
F-19
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors
Aero
Grow
International, Inc.
Boulder,
Colorado
We
have
audited the accompanying balances sheets of Aero Grow International, Inc. (a
development stage enterprise, the "Company") as of December 31, 2005 and 2004,
and the related statements of operations, stockholders' equity (deficit), and
cash flows for each of the two years then ended and for the cumulative period
from March 25, 2002 (inception) to December 31, 2005. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as
well as evaluating the overall financial statement presentation. We believe
that
our audits provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Aero Grow International, Inc.
as of
December 31, 2005 and 2004, and the results of its operations and its cash
flows
for the two years then ended, and for the cumulative period March 25, 2002
(inception) to December 31, 2005, in conformity with accounting principles
generally accepted in the United States of America.
Gordon,
Hughes & Banks, LLP
Greenwood
Village, Colorado
January
18, 2006
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
BALANCE
SHEETS
|
|
|
December
31,
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
949,126
|
|
$
|
1,916,842
|
|
|
Subscriptions
receivable
|
|
|
840,000
|
|
|
41,000
|
|
|
Inventory
|
|
|
19,480
|
|
|
–
|
|
|
Prepaid
expenses and other
|
|
|
79,720
|
|
|
5,423
|
|
|
Total
current assets
|
|
|
1,888,326
|
|
|
1,963,265
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
482,043
|
|
|
38,561
|
|
|
Less
accumulated depreciation
|
|
|
(61,599
|
)
|
|
(7,840
|
)
|
|
Property
and equipment, net
|
|
|
420,444
|
|
|
30,721
|
|
|
|
|
|
|
|
|
|
|
|
Debt
issuance costs, net of $209,737 accumulated amortization
|
|
|
209,737
|
|
|
–
|
|
|
Intangible
assets
|
|
|
20,407
|
|
|
–
|
|
|
Deposits
|
|
|
4,684
|
|
|
4,484
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,543,598
|
|
$
|
1,998,470
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
196,840
|
|
$
|
46,969
|
|
|
Accrued
expenses
|
|
|
56,900
|
|
|
27,745
|
|
|
Convertible
debentures, net of discounts of $904,740
|
|
|
2,095,260
|
|
|
–
|
|
|
Mandatorily
redeemable common stock
|
|
|
310,000
|
|
|
–
|
|
|
Accrued
compensation
|
|
|
–
|
|
|
11,833
|
|
|
Total
current liabilities
|
|
|
2,659,000
|
|
|
86,547
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity (deficit)
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value, 20,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
none
issued or outstanding
|
|
|
–
|
|
|
–
|
|
|
Common
stock, $.001 par value, 75,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
5,578,740
and 4,882,908 shares issued and
|
|
|
|
|
|
|
|
|
outstanding
at December 31, 2005 and
|
|
|
|
|
|
|
|
|
December
31, 2004, respectively
|
|
|
5,579
|
|
|
4,883
|
|
|
Additional
paid-in capital
|
|
|
11,741,388
|
|
|
5,761,832
|
|
|
(Deficit)
accumulated during the development stage
|
|
|
(11,862,369
|
)
|
|
(3,854,792
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity (deficit)
|
|
|
(115,402
|
)
|
|
1,911,923
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity (deficit)
|
|
$
|
2,543,598
|
|
$
|
1,998,470
|
|
See
accompanying summary of accounting policies and notes to financial
statements.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS
OF OPERATIONS
|
|
|
Cumulative
Period from
|
|
|
|
|
|
March
25 2002 (Inception) to
|
|
|
|
|
|
December
31,
2005
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
Research
and development
|
|
|
1,271,691
|
|
|
577,302
|
|
|
333,253
|
|
|
Professional
consulting fees
|
|
|
2,721,308
|
|
|
1,594,102
|
|
|
676,906
|
|
|
Salaries
and wages
|
|
|
2,200,386
|
|
|
1,314,009
|
|
|
783,263
|
|
|
Other
general and administrative
|
|
|
4,864,775
|
|
|
3,422,309
|
|
|
603,186
|
|
|
Total
operating expenses
|
|
|
11,058,160
|
|
|
6,907,722
|
|
|
2,396,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(11,058,160
|
)
|
|
(6,907,722
|
)
|
|
(2,396,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
|
(804,209
|
)
|
|
(809,855
|
)
|
|
7,564
|
|
|
Total
other income (expense), net
|
|
|
(804,209
|
)
|
|
(809,855
|
)
|
|
7,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(11,862,369
|
)
|
$
|
(7,717,577
|
)
|
$
|
(2,389,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share, basic and diluted
|
|
|
|
|
$
|
(1.55
|
)
|
$
|
(0.56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
|
|
|
|
|
|
|
|
|
|
|
|
outstanding,
basic and diluted
|
|
|
|
|
|
4,971,857
|
|
|
4,252,626
|
|
See
accompanying summary of accounting policies and notes to financial
statements.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
STATEMENT
OF STOCKHOLDERS' EQUITY (DEFICIT)
Period
from March 25, 2002 (Inception) to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in July 2002 to parent company
|
|
|
1,200,000
|
|
$
|
1,200
|
|
$
|
4,800
|
|
$
|
-
|
|
$
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
of common stock in parent company by president for common stock
(restated)
|
|
|
600,000
|
|
|
600
|
|
|
299,400
|
|
|
-
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash during private placement from December
7, 2002 to
December 27, 2002 at $0.50 per share
|
|
|
380,000
|
|
|
380
|
|
|
189,620
|
|
|
-
|
|
|
190,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for services provided at $1.20 per share
|
|
|
27,000
|
|
|
27
|
|
|
32,373
|
|
|
-
|
|
|
32,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to Board of Directors at $1.20 per share
|
|
|
3,000
|
|
|
3
|
|
|
3,597
|
|
|
-
|
|
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) for the period from July 2, 2002 (inception) to December
31, 2002
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(596,213
|
)
|
|
(596,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2002
|
|
|
2,210,000
|
|
|
2,210
|
|
|
529,790
|
|
|
(596,213
|
)
|
|
(64,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash during private placement from January
1 to
February 14, 2003 at $0.50 per share
|
|
|
90,000
|
|
|
90
|
|
|
44,910
|
|
|
-
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash during private placement from March 1
to August
31, 2003 at $1.25 per share
|
|
|
880,800
|
|
|
881
|
|
|
1,100,119
|
|
|
-
|
|
|
1,101,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash during private placement from September
30 to
December 31, 2003 at $1.665 per share
|
|
|
175,763
|
|
|
176
|
|
|
292,568
|
|
|
-
|
|
|
292,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of additional shares of common stock to private placement
investors
|
|
|
93,888
|
|
|
94
|
|
|
(94
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for services provided (4,000 shares at $1.20 per
share and
36,999 shares at $1.25 per share)
|
|
|
40,999
|
|
|
41
|
|
|
51,007
|
|
|
-
|
|
|
51,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of common stock warrants at $1.25 per share
|
|
|
120,000
|
|
|
120
|
|
|
149,880
|
|
|
-
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options to non-employees for services provided from January
1,
2003 to December 31, 2003
|
|
|
-
|
|
|
-
|
|
|
73,151
|
|
|
-
|
|
|
73,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to Board of Directors at $1.25 per share
|
|
|
6,000
|
|
|
6
|
|
|
7,494
|
|
|
-
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to Advisory Board at $1.25 per share
|
|
|
130,120
|
|
|
130
|
|
|
162,520
|
|
|
-
|
|
|
162,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,159,535
|
)
|
|
(1,159,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2003
|
|
|
3,747,570
|
|
|
3,748
|
|
|
2,411,345
|
|
|
(1,755,748
|
)
|
|
659,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash from January 1 to January 30, 2004 at
$1.25 per
share
|
|
|
40,000
|
|
|
40
|
|
|
49,960
|
|
|
-
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash during private placement from February
1 to June
30, 2004 at $1.665 per share
|
|
|
360,458
|
|
|
360
|
|
|
600,140
|
|
|
-
|
|
|
600,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash during public offering from July 30 to
December
31, 2004 at $5.00 per share, net of $185,240 in offering
costs
|
|
|
498,596
|
|
|
498
|
|
|
2,307,239
|
|
|
-
|
|
|
2,307,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of additional shares of common stock to private placement
investors
|
|
|
27,700
|
|
|
28
|
|
|
(28
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of additional shares of common stock to public offering
investors
|
|
|
45,633
|
|
|
46
|
|
|
(46
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for services provided (4,000 shares at $0.05 per
share;
5,000 shares at $1.25 per share; 38,332 shares at $1.65 per share
and
97,550 shares at $5.00 per share)
|
|
|
144,882
|
|
|
145
|
|
|
557,301
|
|
|
-
|
|
|
557,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of common stock warrants at $1.25 per share
|
|
|
12,000
|
|
|
12
|
|
|
14,988
|
|
|
-
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options to non-employees for services provided from January
1,
2004 to December 31, 2004
|
|
|
-
|
|
|
-
|
|
|
80,939
|
|
|
-
|
|
|
80,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to Board of Directors at $5.00 per share
|
|
|
6,000
|
|
|
6
|
|
|
29,994
|
|
|
-
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,389,044
|
)
|
|
(2,389,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects
of 1 for 5 reverse stock split
|
|
|
69
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2004
|
|
|
4,882,908
|
|
|
4,883
|
|
|
6,051,832
|
|
|
(4,144,792
|
)
|
|
1,911,923
|
|
See
accompanying summary of accounting policies and notes to financial
statements.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
STATEMENT
OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Period
from March 25, 2002 (Inception) to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During
the
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Development
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Total
|
|
|
Exercise
of common stock warrants from August to December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
at $1.25 per share
|
|
|
38,000
|
|
|
38
|
|
|
47,462
|
|
|
–
|
|
|
47,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of common stock warrants from June to December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
at $2.50 per share
|
|
|
390,000
|
|
|
390
|
|
|
974,610
|
|
|
–
|
|
|
975,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of common stock warrants at December 31, 2005 at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$5.00
per share
|
|
|
5,000
|
|
|
5
|
|
|
24,995
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash in August at $5.00 per share
|
|
|
1,600
|
|
|
2
|
|
|
7,998
|
|
|
–
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for services provided, rent and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equipment
purchases from January to December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
at $5.00 per share
|
|
|
261,232
|
|
|
261
|
|
|
1,305,875
|
|
|
–
|
|
|
1,306,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options to non-employees for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provided
|
|
|
–
|
|
|
–
|
|
|
72,936
|
|
|
–
|
|
|
72,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants to debt holders of convertible debentures
|
|
|
–
|
|
|
–
|
|
|
1,059,480
|
|
|
–
|
|
|
1,059,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic
value of convertible debentures, beneficial conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
feature
|
|
|
–
|
|
|
–
|
|
|
750,000
|
|
|
–
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects
of variable accounting on the modification of terms
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
outstanding warrants
|
|
|
–
|
|
|
–
|
|
|
1,446,200
|
|
|
–
|
|
|
1,446,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(7,717,577
|
)
|
|
(7,717,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2005
|
|
|
5,578,740
|
|
$
|
5,579
|
|
$
|
11,741,388
|
|
$
|
(11,862,369
|
)
|
$
|
(115,402
|
)
|
See
accompanying summary of accounting policies and notes to financial
statements.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
Period from March 25, 2002 (Inception) to December 31,
2005
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(11,862,369
|
)
|
$
|
(7,717,577
|
)
|
$
|
(2,389,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net (loss) to cash provided (used) by
operations:
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock and options for services
|
|
|
2,347,806
|
|
|
1,349,072
|
|
|
668,385
|
|
|
Depreciation
expense
|
|
|
61,599
|
|
|
53,759
|
|
|
5,920
|
|
|
Amortization
of debt issuance costs
|
|
|
209,737
|
|
|
209,737
|
|
|
-
|
|
|
Amortization
of convertible debentures, beneficial conversion feature
|
|
|
375,000
|
|
|
375,000
|
|
|
-
|
|
|
Interest
expense associated with warrants issued with convertible
debentures
|
|
|
529,740
|
|
|
529,740
|
|
|
-
|
|
|
Issuance
of common stock as compensation expense
|
|
|
300,000
|
|
|
-
|
|
|
-
|
|
|
Effects
of variable accounting for modification of warrant terms
|
|
|
1,446,200
|
|
|
1,446,200
|
|
|
-
|
|
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)
in inventory
|
|
|
(19,480
|
)
|
|
(19,480
|
)
|
|
-
|
|
|
(Increase)
in other current assets
|
|
|
(919,699
|
)
|
|
(873,297
|
)
|
|
(3,323
|
)
|
|
(Increase)
in deposits
|
|
|
(4,684
|
)
|
|
(200
|
)
|
|
(2,484
|
)
|
|
Increase
in accounts payable
|
|
|
196,819
|
|
|
149,871
|
|
|
39,480
|
|
|
Increase
in accrued expenses and manditorily redeemable stock
|
|
|
366,900
|
|
|
339,155
|
|
|
18,469
|
|
|
(Decrease)
in accrued compensation
|
|
|
-
|
|
|
(11,833
|
)
|
|
(25,770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used) by operating activities
|
|
|
(6,972,431
|
)
|
|
(4,169,853
|
)
|
|
(1,688,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of equipment
|
|
|
(452,043
|
)
|
|
(413,482
|
)
|
|
(11,556
|
)
|
|
Patent
expenses
|
|
|
(20,407
|
)
|
|
(20,407
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used) by investing activiites
|
|
|
(472,450
|
)
|
|
(433,889
|
)
|
|
(11,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)
in due to parent company
|
|
|
-
|
|
|
-
|
|
|
(17,884
|
)
|
|
Proceeds
from issuance of common stock
|
|
|
5,807,481
|
|
|
1,055,500
|
|
|
3,002,237
|
|
|
Proceeds
from issuance of convertible debentures
|
|
|
3,000,000
|
|
|
3,000,000
|
|
|
-
|
|
|
Issuance
costs associated with debentures
|
|
|
(419,474
|
)
|
|
(419,474
|
)
|
|
-
|
|
|
Proceeds
from initial investment by parent company
|
|
|
6,000
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
8,394,007
|
|
|
3,636,026
|
|
|
2,984,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
949,126
|
|
|
(967,716
|
)
|
|
1,284,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
beginning of period
|
|
|
-
|
|
|
1,916,842
|
|
|
632,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
end of period
|
|
$
|
949,126
|
|
$
|
949,126
|
|
$
|
1,916,842
|
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
113,729
|
|
$
|
111,487
|
|
$
|
324
|
|
|
Issuance
of mandatorily redeemable common stock for tooling
|
|
$
|
310,000
|
|
$
|
-
|
|
$
|
-
|
|
|
Issuance
of common stock for equipment purchases
|
|
$
|
30,000
|
|
$
|
30,000
|
|
$
|
-
|
|
See
accompanying summary of accounting policies and notes to financial
statements.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
Note
1 –
Description of the Business and Summary of Significant Accounting
Policies
Description
of the Business
Aero
Grow
International, Inc. ("the Company") was incorporated in the State of Nevada
on
March 25, 2002. The Company was organized for the purpose of researching,
developing, manufacturing, and marketing indoor, turnkey, "plug and grow" Aero
Grow "Kitchen garden" systems designed and priced for the consumer market
worldwide. The Company’s offices are in Boulder, Colorado.
From
the
period March 25, 2002 (Inception) to December 31, 2005, the Company has raised
$4,967,481, from shares sold through private placements, a Colorado public
offering and, $3,000,000, through a private convertible debenture offering
from
June 6, 2005 thru December 31, 2005. However, the Company has experienced
significant operating losses since inception and has an accumulated deficit
of
$11,862,369 as of December 31, 2005.
As
noted
in the subsequent events footnote 10, the Company has entered into a merger
agreement for a reverse merger and is scheduled to close the merger by the
end
of February 2005. Concurrently, the Company is scheduled to close its private
placement offering and has currently raised approximately $9.0 million. The
Company believes these actions, if successful, will enable it to generate
revenues to the level necessary to create positive cash flow from
operations.
Additionally,
the Company has signed a manufacturing agreement with a Chinese contract
manufacturer with the intention of launching its product for sale during the
first half of 2006.
Significant
Accounting Policies
Use
of
estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial
statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net
Income (Loss) per Share of Common Stock
The
Company computes net income (loss) per share of common stock in accordance
with
SFAS No. 128, “Earnings per Share,” and Securities and Exchange Commission Staff
Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128 requires companies with
complex capital structures to present basic and diluted EPS. Basic EPS is
measured as the income or loss available to common stock shareholders divided
by
the weighted average shares of common stock outstanding for the period. Diluted
EPS is similar to basic EPS but presents the dilutive effect on a per share
basis of potential common stock (e.g., convertible securities, options and
warrants) as if they had been converted at the beginning of the periods
presented. Potential shares of common stock that have an anti-dilutive effect
(i.e., those that increase income per share or decrease loss per share) are
excluded from the calculation of diluted EPS.
Reclassifications
& Restatement
Certain
prior year amounts have been reclassified to conform to current year
presentation.
The
accompanying balance sheet and statement of changes in stockholders’ equity
(deficit) has been restated from previously issued financial statements. For
the
period ended December 31, 2002, the Company has recorded $300,000 in
compensation expense to properly reflect the fair value of the exchange of
an
officer’s holdings of one million shares of common stock in Mentor Capital
Consultants, Inc. (the then parent company) for three million shares of common
stock of the Company. The transaction was initially recorded as a reciprocal
stockholding in its former parent of $10,000, and subsequent $10,000 impairment.
The effects of the restatement include the retained (deficit) being increased
by
$290,000 for each of the periods ended December 31, 2004 and 2003, and the
statement of changes in stockholders’ equity reflecting an increase to
additional paid in capital of $300,000, effective in fiscal year
2002.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
Significant
Accounting Policies (continued)
Cash
and cash equivalents
The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash and cash equivalents.
Concentration
of Credit Risk and Financial Instruments
Statement
of Financial Accounting Standards ("SFAS") No. 105, "Disclosure of Information
About Financial Instruments with Off-Balance Sheet Risk and Financial
Instruments with Concentrations of Credit Risk", requires disclosure of
significant concentrations of credit risk regardless of the degree of such
risk.
Financial instruments with significant credit risk include cash. The amount
on
deposit with a financial institution exceeded the $100,000 federally insured
limit as of December 31, 2005 and 2004. However, management believes that the
financial institution is financially sound and the risk of loss is
minimal.
Financial
instruments consist of cash and cash equivalents, subscriptions receivable
and
accounts payable. The carrying values of all financial instruments approximate
their fair value. The carrying value of the convertible debentures approximate
their fair value based on the current interest rate of 5%.
Property
and equipment
Property
and equipment are stated at cost. Depreciation for financial accounting purposes
is computed using the straight-line method over the estimated lives of the
respective assets. Office equipment and computer hardware are depreciated over
five years. The Company has purchased and built its own manufacturing equipment
and tools. The equipment is being amortized over a period of seven years
commencing July 1, 2003. Direct internal labor incurred in the manufacturing
of
the equipment totaled $12,714 as of December 31, 2005, and $6,240 as of December
31, 2004, and has been capitalized. The Company does not capitalize any overhead
or other administrative costs in conjunction with the manufacturing of
equipment.
Property
and equipment consist of the following as of:
|
|
|
December
31,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Manufacturing
equipment and tooling
|
|
$
|
402,639
|
|
$
|
11,772
|
|
|
Computer
hardware
|
|
|
40,973
|
|
|
17,575
|
|
|
Office
equipment
|
|
|
38,431
|
|
|
9,214
|
|
|
|
|
|
482,043
|
|
|
38,561
|
|
|
Less:
accumulated depreciation
|
|
|
(61,599
|
)
|
|
(7,840
|
)
|
|
Property
and equipment, net
|
|
$
|
420,444
|
|
$
|
30,721
|
|
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
Significant
Accounting Policies (continued)
Research
and Development
The
costs
incurred to develop products to be sold or otherwise marketed are currently
charged to expense. When a product is ready for general release, its capitalized
costs will be amortized using the straight-line method of amortization over
a
reasonable period. During the years ended December 31, 2005 and 2004, no
research and development costs have been capitalized.
Inventory
Inventories
consist of finished goods purchased from third-party manufacturers and is
valued at the lower of average cost or market, average cost being determined
using the first-in, first-out method of accounting. At December 31, 2005,
total inventory of $19,480 consisted of product purchased for re-sale in fiscal
year 2006.
Stock
Based Compensation
The
Company accounts for its stock-based compensation using Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees
,
("APB
No. 25"), and related interpretations, as permitted by SFAS No. 123, Accounting
for Stock-based Compensation, (“SFAS No. 123”), as amended by SFAS No. 148,
Accounting for Stock-based Compensation-Transition and Disclosure. Under APB
25,
compensation expense is recognized for stock options with an exercise price
that
is less than the market price on the grant date of the option. For stock options
with exercise prices at or above the market value of the stock on the grant
date, the Company adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for these options. As
of
December 31, 2005, and since inception, 90,613 options have been issued to
employees or directors of the Company and 609 options have expired.
The
following table illustrates the effect on net loss if the Company had applied
the fair value recognition provisions, as prescribed by SFAS 123, to stock-based
compensation for all awards.
|
|
|
Year
Ended December 31
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss, as reported
|
|
$
|
(7,717,577
|
)
|
$
|
(2,389,044
|
)
|
|
Net
income (loss) per share, basic and diluted, as reported
|
|
$
|
(1.55
|
)
|
$
|
(0.56
|
)
|
|
Deduct:
Stock-based compensation expense, as determined under fair-value
based
method for all awards
|
|
|
(225,127
|
)
|
|
(96,294
|
)
|
|
Pro
forma net loss
|
|
$
|
(7,942,704
|
)
|
$
|
(2,485,338
|
)
|
|
Pro
forma net income (loss) per share, basic and
diluted
|
|
$
|
(1.60
|
)
|
$
|
(0.58
|
)
|
For
purposes of calculating fair value under SFAS 123, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions: no dividend yield,
expected volatility rate of 129.67%;
risk
free
interest rate of 5%; and average lives of 5 years.
Income
taxes
The
Company accounts for deferred income taxes in accordance with the liability
method as required by Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("SFAS 109"). Deferred income taxes are recognized
for the tax consequences in future years for differences between the tax basis
of assets and liabilities and their financial reporting amounts at the end
of
each period, based on
enacted
laws and statutory rates applicable to the periods in which the differences
are
expected to affect taxable income. Any liability for actual taxes to taxing
authorities is recorded as income tax liability.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
Significant
Accounting Policies (continued)
Comprehensive
Income
Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
requires the presentation and disclosure of all changes in equity from non-owner
sources as "Comprehensive Income". The Company had no items of comprehensive
income for the years ended December 31, 2005 and December 31, 2004.
Segments
Of An Enterprise And Related Information
Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") replaces the industry segment
approach under previously issued pronouncements with the management approach.
The management approach designates the internal organization that is used by
management for allocating resources and assessing performance as the source
of
the Company's reportable segments. SFAS 131 also requires disclosures about
products and services, geographic areas and major customers. At present, the
Company only operates in one segment.
Debt
Issuance Costs
Debt
issuance costs consist of consideration paid to third parties with respect
to
debt financing transactions, including cash payments for legal fees and
placement agent fees. Such costs are being deferred and amortized over the
term
of the related debt which is one year. As of December 31, 2005, a six month
term
remains to be amortized.
Intangible
Assets
Intangible
assets, to date, have consisted of the direct costs incurred for application
fees and legal expenses associated with patents and trademarks on the Company's
products. The Company periodically reviews the recoverability from future
operations using undiscounted cash flows. To the extent carrying values
exceed fair values, an impairment loss will be evaluated for possible
recording. The Company will amortize its patent costs over 17
years.
Intangible
assets consist of the following as of December 31, 2005:
|
Patent
applications
|
|
$
|
15,503
|
|
|
Trademark
applications
|
|
|
4,904
|
|
|
Total
intangible assets
|
|
$
|
20,407
|
|
Beneficial
Conversion Feature of Debentures
In
accordance with Emerging Issues Task Force No. 98-5 (“EITF 98-5”), Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios, and No. 00-27, Application of Issue No. 98-5
to
Certain Convertible Instruments, the Company recognizes the advantageous value
of conversion rights attached to convertible debt. Such rights gives the debt
holder the ability to convert debt into shares of common stock at a price per
share that is less than the fair market value of the common stock on the day
the
loan is made to the Company. The beneficial value is calculated as the intrinsic
value (the fair market value of the stock at the commitment date in excess
of
the conversion rate) of the beneficial conversion feature of the debentures
and
the related accrued interest and is recorded as a discount to the related debt
and an addition to additional paid in capital. The discount is subsequently
amortized to interest expense over the remaining outstanding period of the
related debt using the interest method.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
Significant
Accounting Policies (continued)
New
Accounting Pronouncements
In
December 2004, the FASB issued a revision to FASB Statement 123, “Accounting for
Stock Based Compensation”. This Statement supersedes APB Opinion No. 25,
“Accounting for Stock Issued to employees”, and its related implementation
guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods
or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based
payment
transactions. This Statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided
in
Statement 123 as originally issued and EITF Issue No. 96-18, "Accounting
for
Equity Instruments That Are Issued to Other Than Employees, or in Connection
with Selling Goods or Services." This Statement does not address the accounting
for employee share ownership plans, which are subject to AICPA Statement
of
Position 93-6, “Employees' Accounting for Employee Stock Ownership
Plans”.
A
public
entity will initially measure the cost of employee services received in exchange
for an award of liability instruments based on its current fair value; the
fair
value of that award will be re-measured subsequently at each reporting date
through the settlement date. Changes in fair value during the requisite service
period will be recognized as compensation cost over that period.
The
grant-date fair value of employee share options and similar instruments will
be
estimated using the option-pricing models adjusted for the unique
characteristics of those instruments (unless observable market prices for the
same or similar instruments are available).
Excess
tax benefits, as defined by this Statement, will be recognized as an addition
to
paid-in-capital. Cash retained as a result of those excess tax benefits will
be
presented in the statement of cash flows as financing cash inflows. The
write-off of deferred tax assets relating to unrealized tax benefits associated
with recognized compensation cost will be recognized as income tax expense
unless there are excess tax benefits from previous awards remaining in paid-in
capital to which it can be offset.
The
notes
to the financial statements will disclose information to assist users of
financial information to understand the nature of share-based payment
transactions and the effects of those transactions on the financial
statements.
The
effective date for public entities that do not file as small business issuers
will be as of the beginning of the first interim or annual reporting period
that
begins after June 15, 2005. For public entities that file as small business
issuers and nonpublic entities the effective date will be as of the beginning
of
the first interim or annual reporting period that begins after December 15,
2005. Management expects that the effect of this pronouncement could have a
material impact upon its future financial statements and intends to comply
with
this Statement at the scheduled effective date.
In
June
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a
replacement of APB No. 20, and FAS No. 3.” SFAS No. 154 provides guidance on the
accounting for and reporting of accounting changes and error corrections. It
establishes, unless impracticable, retrospective application as the required
method for reporting a change in accounting principle in the absence of explicit
transition requirements specific to the newly adopted accounting principle.
SFAS
No. 154 also provides guidance for determining whether retrospective application
of a change in accounting principle is impracticable and for reporting a change
when retrospective application is impracticable. The correction of an error
in
previously issued financial statements is not an accounting change. However,
the
reporting of an error correction involves adjustments to previously issued
financial statements similar to those generally applicable to reporting an
accounting change retrospectively. Therefore, the reporting of a correction
of
an error by restating previously issued financial statements is also addressed
by SFAS No. 154. SFAS No. 154 is required to be adopted in fiscal years
beginning after December 15, 2005. The Company does not believe adoption of
SFAS
No. 154 will have a material impact on its financial position, results of
operations or cash flows.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
Note
2 – Income Taxes
The
Company did not record any provision for federal and state income taxes for
the
years ended December 31, 2005, and December 31, 2004. Variations from the
federal statutory rate are as follows:
|
|
|
Cumulative
period from
|
|
|
|
|
|
|
March
25, 2002 (Inception) to
|
|
Years
Ended
December
31,
|
|
|
|
|
December
31, 2005
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
income tax benefit at
the statutory rate of 34%
|
|
|
3,094,946
|
|
|
2,091,806
|
|
|
794,910
|
|
|
Net
operating (loss) carryforward
|
|
|
(3,094,946
|
)
|
|
(2,091,806
|
)
|
|
(794,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
tax expense
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
Deferred
income tax assets result from federal and state operating loss carryforwards
in
the amounts of $7,758,420, and $3,777,190 for the years ended December 31,
2005
and 2004, respectively. The loss carry forwards will begin to expire in 2022.
At
December 31, 2005 and 2004, the Company has research and development tax credit
carryforwards of $118,285 and $83,942, respectively, which begin to expire
in
2022.
Net
deferred tax assets consist of the following as of:
|
|
|
December
31,
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Tax
effect of net operating loss carryforwards
|
|
$
|
2,997,078
|
|
$
|
1,459,129
|
|
|
Tax
effect of non-employee stock based compensation
|
|
|
–
|
|
|
385,811
|
|
|
Tax
effect of other temporary differences
|
|
|
(20,417
|
)
|
|
(7,196
|
)
|
|
Research
and development tax credit
|
|
|
118,285
|
|
|
83,942
|
|
|
Less
valuation allowance
|
|
|
(3,094,946
|
)
|
|
(1,921,686
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
–
|
|
$
|
–
|
|
In
assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some or the entire deferred tax asset
will not be realized. The Company believes that sufficient uncertainty exists
regarding the realizability of the deferred tax assets such that valuation
allowances equal to the entire balance of the deferred tax assets are necessary.
In accordance with Sections 382 and 383 of the Internal Revenue Code, a change
in ownership of greater than 50% of a corporation within a three-year period
will place an annual limitation on our ability to utilize our existing tax
loss
and tax credit carryforwards.
Note
3 – Stock Options
In
2003,
the Company's Board of Directors approved a Stock Option Plan (the Plan)
pursuant to which nonqualified stock options are reserved for issuance to
eligible employees, consultants and directors of the Company. The Plan is
administered by the Board of Directors, which has the authority to select the
individual’s to whom awards are to be granted, the number of shares of common
stock to be covered by each award, the vesting schedule of stock options, and
all other terms and conditions of each award. The Company has granted
nonqualified stock options to purchase shares of common stock to certain
employees at exercise prices ranging from $.05 to $5.00 per share. In August
2005, the Plan was merged into the 2005 Equity Compensation Plan and it no
longer separately exists. However, options issued and outstanding
under
this Plan continue to be governed by their grant agreements but are administered
under the 2005 Equity Compensation Plan.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
Note
3 – Stock Options (continued)
In
August
2005, the Company’s Board of Directors approved the 2005 Equity Compensation
Plan (the 2005 Plan) pursuant to which both qualified and nonqualified stock
options as well as restricted shares of common stock are reserved for issuance
to eligible employees, consultants and directors of the Company.
The
2005
Plan is administered by the Company’s compensation committee which has the
authority to select the individual’s to whom awards are to be granted, the
number of shares of common stock to be covered by each award, the vesting
schedule of stock options, and all other terms and conditions of each award.
The
Company has granted qualified stock options to purchase shares of common stock
to certain employees at exercise prices ranging from $2.50 to $5.00 per
share.
The
Company has adopted the disclosure only provisions of Statement of Financial
accounting Standards No. 123 "Accounting for Stock-Based compensation" ("SFAS
No. 123"). Accordingly, the Company continues to account for options using
the
intrinsic value method prescribed in Accounting Principles Board Opinion No.
25
("APB No. 25").
A
summary
of activity in the Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
25, 2002 (Inception) to
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Number
of
|
|
|
Exercise
|
|
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
Outstanding
at the beginning
of the period
|
|
|
–
|
|
$
|
–
|
|
|
38,994
|
|
$
|
2.85
|
|
|
4,737
|
|
$
|
2.00
|
|
|
Granted
during the period
|
|
|
90,613
|
|
|
4.00
|
|
|
51,625
|
|
|
4.88
|
|
|
34,257
|
|
|
2.95
|
|
|
Cancelled
during the period
|
|
|
(609
|
)
|
|
(0.05
|
)
|
|
(615
|
)
|
|
(0.05
|
)
|
|
–
|
|
|
–
|
|
|
Exercised
during the period
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Outstanding
at the end of
the period
|
|
|
90,004
|
|
$
|
4.03
|
|
|
90,004
|
|
$
|
4.03
|
|
|
38,994
|
|
$
|
2.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at end of period
|
|
|
90,004
|
|
$
|
4.03
|
|
|
90,004
|
|
$
|
4.03
|
|
|
38,994
|
|
$
|
2.85
|
|
As
of
December 31, 2005, outstanding options had weighted average contractual lives
remaining of approximately four years with an exercise price of $4.03 per share.
Of those options outstanding at December 31, 2005, all are fully vested. As
of
December 31, 2004, outstanding options have weighted average contractual lives
remaining of approximately four and one half years with an exercise price of
$2.85 per share.
In
addition to stock options granted to employees,
the
Company granted options to purchase shares of common stock to certain
consultants in exchange for services provided. The compensation cost of these
options, measured by the fair value of the options provided in lieu of cash,
has
been included in general and administrative expense. The assumptions utilized
to
value employee options in accordance with the disclosure requirements of SFAS
No. 123 were also used to value the options issued to the consultants. For
the
years ended December 31, 2005, and December 31, 2004, the Company has recognized
consulting expense related to the non-employee options of $72,936 and $80,939,
respectively.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
Note
3 – Stock Options (continued)
Following
is a reconciliation of transactions during the period for options granted to
consultants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
25, 2002 (Inception) to
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Number
of
|
|
|
Exercise
|
|
|
|
|
|
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
Outstanding
at the beginning
of the period
|
|
|
–
|
|
$
|
–
|
|
|
145,335
|
|
$
|
1.10
|
|
|
101,825
|
|
$
|
1.00
|
|
|
Granted
during the period
|
|
|
160,769
|
|
|
1.19
|
|
|
15,445
|
|
|
2.00
|
|
|
43,510
|
|
|
1.45
|
|
|
Cancelled
during the period
|
|
|
(17,603
|
)
|
|
(0.64
|
)
|
|
(17,614
|
)
|
|
(0.64
|
)
|
|
–
|
|
|
–
|
|
|
Exercised
during the period
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
Outstanding
at the end of the period
|
|
|
143,166
|
|
$
|
1.27
|
|
|
143,166
|
|
$
|
1.27
|
|
|
145,335
|
|
$
|
1.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at end of period
|
|
|
143,166
|
|
$
|
1.27
|
|
|
143,166
|
|
$
|
1.27
|
|
|
145,335
|
|
$
|
1.10
|
|
As
of
December 31, 2005, outstanding options had weighted average contractual lives
remaining of approximately four years with an exercise price of $1.27 per share.
Of those options outstanding at December 31, 2005, all are fully vested. As
of
December 31, 2004, outstanding non-employee options have a weighted average
contractual life remaining of approximately four and one half years with an
average exercise price of $1.10 per share. Of those options outstanding at
December 31, 2004, all are fully vested.
Note
4 – Related Party Transactions
During
the years ended December 31, 2005 and December 31, 2004, the Company retained
one member of their board as a consultant who was granted shares of common
stock
and fees for services provided totaling $286,167 and $46,723, respectively.
During the years ended December 31, 2005 and December 31, 2004, the Company
paid
legal fees to a director in the amount of $37,438 and $24,000, respectively,
and
issued shares of common stock for services provided valued at $10,000 and
$83,250, respectively. The Company also issued shares of common stock to its
Board of Directors for services provided valued at $30,000 for both of the
years
ended December 31, 2005 and December 31, 2004.
The
Company leased their office space during the year ended December 31, 2005 from
a
landlord who is a minority shareholder. The Company paid rent to the shareholder
in the amount of $30,408 and issued shares of common stock for rent provided
valued at $76,036. Thru July 2005, the Company leased certain laboratory space
from an employee. Rent expense paid to the employee totaled $7,574 and $5,200
for the years ended December 31, 2005 and 2004, respectively.
The
Company was renting office furniture, office equipment, and computers from
its
former parent, Mentor Capital Consultants, Inc., at the rate of $2,500 per
month. For the year ended December 31, 2004, the Company paid $30,000 to rent
the equipment. For the first five months of 2005, the Company continued to
rent
equipment from its parent for a total of $12,500. On May 31, 2005, the Company
acquired these fixed assets for their net book value of $33,901.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
Note
4 – Related Party Transactions (continued)
On
October 15, 2002, Mentor Capital Consultants, Inc.'s principal shareholder
and
chief executive officer exchanged one million (1,000,000), of his outstanding
shares in Mentor Capital for three million (3,000,000) shares of common stock
of
the Company.
As
a
result of this transaction, the Company has restated it’s previously issued 2002
financial statements by recording $300,000, in compensation expense.
Note
5 – Operating Leases
The
Company leases certain facilities and office space under a non-cancelable
operating lease agreement. Rent expense for the years ended December 31, 2005,
and December 31, 2004, was approximately $106,444 and $91,741, respectively.
This includes the fair value of 15,208 shares and 15,531 shares of common stock
granted to the landlord for the years ended December 31, 2005 and December
31,
2004, respectively.
One
of
the Company’s operating leases ended on December 31, 2005. The Company is
currently in negotiations for a new operating lease and is on a month-to-month
basis at $1,000 per month. In addition, the Company is on a month-to-month
basis
with the same landlord for additional space beginning in November at the rate
of
$700 per month.
The
Company leased certain laboratory space under a month-to-month lease beginning
November 2005 at the rate of $600 per month.
The
Company leased certain production space under a month-to-month lease beginning
in August 2005, at the rate of $1,315 per month.
Note
6 – Shareholders' Equity
During
the period from December 1, 2002 to December 31, 2002, the Company issued a
private placement memorandum for the purpose of raising capital for
administrative costs, research and development, and for the establishment of
a
cash reserve. Pursuant to the private placement, the Company sold 380,000 shares
of its common stock at $0.50 per share.
The
Company issued 3,000 shares of common stock, and 27,000 shares of common stock
valued at $1.20 per share to its Board of Directors and consultants for
marketing, administrative, financial, and research and development services
provided in the period from March 25, 2002 (Inception) to December 31, 2002,
respectively. In conjunction with the private placement offering, certain
investors who purchased a minimum of $25,000 of shares of common stock were
provided warrants to purchase additional shares of common stock at $1.25 per
share. As of December 31, 2002, a total of 140,000 warrants were issued and
outstanding.
During
the years ended December 31, 2004 and 2003, the Company continued its private
placement offering initiated in 2002, and issued shares of common stock to
new
investors at $0.50 per share for 90,000 shares, and at $1.25 per share for
880,800 shares. On August 1, 2003, the Company initiated a new private placement
offering, and issued shares of common stock to new investors at $1.665 per
share
for 175,763 shares. During the year ended December 31, 2004, an additional
360,458 shares were issued at $1.665 per share. In conjunction with the
continuing and new private placement offerings, certain investors who purchased
minimum amounts of shares of common stock were provided with additional bonus
shares of common stock. If investors contributed a minimum of $15,000, to the
Company, they were awarded 10% bonus common stock award. In total, 27,700 and
81,888 shares of common stock were issued as bonus shares for the years ended
December 31, 2004 and December 31, 2003, respectively.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
Note
6 – Shareholders' Equity (continued)
As
of
December 31, 2003, in conjunction with the private placement offerings, certain
investors who purchased a minimum of $25,000, of shares of common stock were
provided warrants to purchase additional shares of common stock. 20,000 warrants
were issued at $1.25 per share, 324,098 warrants were issued at $2.50 per share
and 30,000 warrants were issued at $5.00 per share. A total of 374,098 warrants
have been issued in conjunction with the private placement offerings during
2003. A total of 12,000 warrants have been exercised at $1.25 per share, and
a
total of 120,000 warrants have been exercised at $1.25 per share as of December
31, 2004 and December 31, 2003, respectively. Certain investors who exercised
minimum amounts of their warrants were provided with bonus shares of stock.
If
investors contributed a minimum of $25,000, to the Company, they were awarded
a
10% bonus stock award. For the year ended December 31, 2003, 12,000 shares
of
common stock were issued as bonus shares.
The
Company also issued shares of common stock to its Board of Directors for
services provided valued at $30,000 and $7,500 for the years ended December
31,
2004, and December 31, 2003, respectively.
As
of
December 31, 2004, in conjunction with the private placement offerings, certain
investors who purchased a minimum of $25,000, of shares of common stock were
provided warrants to purchase additional shares of common stock. One hundred
sixty-two thousand (162,000) warrants were issued at $2.50 per share.
Twenty-eight thousand (28,000) warrants have expired and a total of 516,098
remain outstanding. The warrants are exercisable over a period not to exceed
two
years commencing immediately at the time of issuance.
During
the year ended December 31, 2004, the Company issued a total of 144,882 shares
of common stock to landlords and consultants. Four thousand (4,000) shares
were
issued at $0.05, 5,000 shares at $1.25, 38,332 shares at $1.665, and 97,550
shares at $5.00 for legal, information technology, marketing, administrative,
and research and development services provided. During the year ended December
31, 2003, the Company issued a total of 40,999 shares of common stock to
landlords and consultants. Four thousand (4,000) shares were issued at $1.20
and
36,999 shares at $1.25 per share to a landlord and consultants for marketing,
administrative, financial, and research and development services provided.
These
shares were priced based on the fair value at which shares were being issued,
based on private placement offerings, at the time services were
rendered.
On
July
1, 2004, the Company was approved for an initial public offering in the State
of
Colorado, and issued shares of common stock to new investors at $5.00 per share
for 498,596 shares. In conjunction with the Colorado public offering, certain
investors who purchased minimum amounts of shares of common stock were provided
with additional bonus shares of common stock. If investors contributed a minimum
of $15,000, to the Company, they were awarded 10% bonus stock award. In total,
45,633 shares of common stock were issued as bonus shares for the year ended
December 31, 2004. Also, in conjunction with the public offering, certain
investors who purchased a minimum of $25,000 of shares of common stock were
provided two warrants to purchase additional shares of common stock. One warrant
is exercisable to purchase a share of common stock at the price of $10.00 per
share and the other warrant is exercisable at $15.00 per share. In total,
390,880 warrants were issued at the exercise price of $10.00, and the same
total
was issued at the exercise price of $15.00 in conjunction with the public
offering for year ended December 31, 2004. None of the warrants were exercised
during 2005 and 2004.
As
of
December 31, 2004, the Company has recorded subscriptions receivable of $41,000,
for shares sold. This amount was subsequently collected in cash.
On
January 31, 2005, the State of Nevada approved the Board of Director's amendment
to the articles of incorporation which increased the authorized shares of the
Company's common stock from 40,000,000 shares to 75,000,000 shares. On May
31,
2005, the Company's Board of Directors approved a one-for-five reverse stock
split of all outstanding shares. The historical share and per share amounts
included in the accompanying financial statement have been retroactively
adjusted to reflect the split.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
Note
6 – Shareholders' Equity (continued)
On
September 2, 2005, the Board approved the modification of 504,098 warrants
whereby the expiration dates of the aforementioned warrants was extended from
various dates throughout 2005, through and including December 31, 2005. The
Company recorded the effects of the modification of these terms of the warrants
in accordance with variable accounting. This modification resulted in additional
expense of $1,446,200 being recorded in the year ending December 31, 2005.
During
the year ended December 31, 2005, 1,600 shares of common stock were sold at
$5.00 per share to an employee per an employment agreement. In addition, 38,000
warrants were exercised at $1.25 per share and 64,000 warrants were exercised
at
$2.50 per share. As of December 31, 2005, the Company has recorded subscriptions
receivable of $840,000 representing the exercises of 326,000 warrants at $2.50
per share and 5,000 warrants at $5.00 per share. This amount has subsequently
been collected in cash in January 2006.
During
2005, the Company issued a total of 261,232 shares of common stock at a $5.00
per share to directors, vendors, landlords, consultants and employees for
information technology, marketing, administrative, financial, manufacturing,
engineering and research and development services provided. The fair value
of
these shares was determined based upon sales of other stock transactions in
the
private market just prior to the services being provided.
The
Company's Articles of Incorporation authorize the issuance of 20,000,000 shares
of preferred stock with $.001 par value. The preferred stock may be issued
from
time to time with such designation, rights, preferences and limitations as
the
Board of Directors may determine by resolution. As of December 31, 2005 and
2004, no shares of preferred stock have been issued.
Note
7 – Exchange Options
On
April
12, 2003, the Board of Directors of Aero Grow offered the option to each of
the
Advisory Board Members of the Company to exchange from 25,000
to 33,333 of each person's shares of Mentor Capital Consultants, Inc. for
15,000 to 20,000 shares of common stock (3 to 1 ratio) of Aero Grow
International, Inc. This option was offered to the Aero Grow Advisory
Board Members as compensation for their first year of service on the Advisory
Board, as well as acknowledgement for their consulting services for the
Company.
As
of
August 1, 2003, all members of Aero Grow's Advisory Board had exercised their
options exchanging 216,865 shares of Mentor Capital for 130,120 shares of common
stock of Aero Grow. For the year ended December 31, 2003, the Company recognized
$162,650, in compensation and consulting expense equal to the fair value of
the
shares received by the Advisory Board. The fair value of the shares was
determined based on the sales price of other stock transactions in the private
market just prior to the exchange.
Note
8 – Mandatorily Redeemable Common Stock
On
September 30, 2005, the Company entered into a manufacturing agreement with
Source Plus, Inc. (“Source Plus”) and Mingkeda Industries Co. Ltd. (“Mingkeda”).
Source Plus advanced monies to Mingkeda for tooling and molds to build the
Company’s products. To reimburse Source Plus for its advances to Mingkeda, the
Company issued 62,000 shares of common stock to Source Plus in October 2005
with
an estimated market value of $5.00 per share. The Company recorded a $310,000
asset for tooling which is being depreciated over a period of three years to
reflect the estimated useful life of the tooling. If an offering or other
transaction to enable Source Plus an ability to register their issued shares
is
not completed on or before June 1, 2006, Source Plus may require the Company
to
repay $310,000 in exchange for its return of the shares of common stock. In
accordance with SFAS No. 150, the Company has recorded the shares issued as
a
liability until such time as the registration contingency can be
removed.
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
Note
8 – Mandatorily Redeemable Common Stock (continued)
The
tooling is located in China and the Company holds title to the tooling equipment
and is able to move the tooling to another manufacturer, if required, in future
periods.
Further,
in return for a future $0.50 per unit price concession from Mingkeda for
products the Company will purchase, the Company issued 10,000 shares of common
stock to Mingkeda in October 2005 with an estimated market value of $5.00 per
share. The Company also agreed to pay to Source Plus a commission of 2% of
the
total purchases of the product with such payments to be made using the same
terms as payments to Mingkeda.
Note
9 – Convertible Debentures
On
May
27, 2005, the Company entered into an exclusive Placement Agreement with Keating
Securities, LLC to raise up to $3,000,000, through a private placement offering
consisting of up to 300 Units at an offering price of $10,000 per Unit. Each
Unit is comprised of a 10% Unsecured Convertible Promissory Note in the
principal amount of $10,000, and 2,000 five-year warrants, each warrant
providing for the purchase of one share of the Company's common stock at the
exercise price of $5.01 per share. The Unsecured Convertible Promissory Notes
bear interest at the rate of 10% annually which is payable quarterly beginning
September 30, 2005. The principal is due on June 30, 2006. During the fifteen
days following the completion of an additional financing, each note holder
has
the opportunity to request full payment of the principal amount of the notes
and
interest instead of converting their convertible notes into shares of common
stock and convertible warrants. As of December 31, 2005, the Company had
received proceeds of $3,000,000 from this private placement less $419,471,
in
directly incurred debt issuance costs.
In
conjunction with this $3,000,000 private placement, the Company recognized
$750,000 of beneficial conversion costs, representing the value of the
beneficial conversion rights of the Convertible Debentures, determined by
calculating the difference of the fair market value of the stock at the
commitment date, or $5.00 per share, less the conversion exercise price of
$4.00
times the number of shares to be issued upon conversion or 750,000 shares.
This
value is recorded as a discount to the Convertible Debentures and an addition
to
additional paid in capital. This discount will be amortized over the term of
the
Convertible Debentures which are due, if not converted, by June 30,
2006.
Also
in
conjunction with this $3,000,000 private placement, the Company recognized
$1,059,480 representing the fair value of the five year warrants issued with
the
Convertible Debentures. The value of these warrants was determined in accordance
with the Black-Scholes pricing model utilizing a historic volatility factor
of
129.67%, a risk free interest rate of 5.0% and an expected life for the warrants
of five years, resulting in a value of $2.73 per warrant. This value was
recorded as an additional discount to the Convertible Debentures and an addition
to additional paid in capital. This discount will be amortized to interest
expense over the term of the Convertible Debentures which are due if not
converted by June 30, 2006.
The
balance presented for the Convertible Debentures, net of discounts, as of
December 31, 2005 is as follows:
|
Face
amount of convertible promissory notes payable
|
|
$
|
3,000,000
|
|
|
|
|
|
|
|
|
Discount
as a result of Beneficial Conversion Feature, net of amortization
of
$375,000.
|
|
|
(375,000
|
)
|
|
Discount
as a result of fair value of warrants issued, net of amortization
of
$529,740.
|
|
|
(529,740
|
)
|
|
Net
balance – December 31, 2005
|
|
$
|
2,095,260
|
|
AERO
GROW INTERNATIONAL, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
Note
10 - Events Subsequent to December 31, 2005 (unaudited)
The
Company entered into a Letter of Intent on January 4, 2006, and a Merger
Agreement on January 12, 2006, with Wentworth I, Inc., a Delaware corporation.
Wentworth is a non-operating entity without significant assets. On January
12,
2006, Wentworth’s Board of Directors and its shareholders approved the Merger
Agreement and the Company’s Board of Directors approved the Merger Agreement.
Under the terms of the Merger Agreement and subject to certain adjustments,
the
Company will issue not more that 5% of its outstanding common stock on
a fully
diluted basis to the Wentworth stockholders.
As
a
condition of the closing of the Merger Agreement, the Company was required
to
complete a private placement offering of its common stock shares and common
stock warrants with gross proceeds of not less that $5 million. The private
placement offering will be for a minimum amount of $5 million and a maximum
amount of $12 million
.
Under
the
terms of the Merger Agreement, the Company has agreed to pay a financial
advisory fee of $350,000 to Wentworth’s financial advisor in the transaction if
the gross proceeds from the offering exceed $10 million.
The
closing of the Merger Agreement and the private placement offering occurred
on
February 24, 2006. AeroGrow received gross proceeds of $10,000,000 in the
Offering. Pursuant to Subscription Agreements entered into with these Investors,
AeroGrow sold 2,000,000 shares of its common stock and warrants to purchase
2,000,000 shares of its common stock. Each Unit in the Offering consisted
of one
share of common stock and a five-year warrant to purchase one share of
common
stock at an exercise price of $6.25 per share. The price per Unit in the
Offering was $5.00. Immediately after the closing of the Offering, the
Investors
will own 2,000,000 shares of AeroGrow’s common stock representing 22.4% of the
issued and outstanding common stock of AeroGrow immediately after the Merger,
the Offering and the Note Conversion. AeroGrow is required to register
the
shares of its common stock issued in the Offering (as well as the shares
of
common stock underlying the Warrants) with the Securities and Exchange
Commission (“SEC”) for resale by the Investors. After commissions, expenses and
the reverse merger fee payable to Keating Securities, AeroGrow received
net
proceeds of $8,321,252 in the Offering. In the Merger each of the Wentworth’s
3,750,000 shares of outstanding common stock was converted into the right
to
receive 0.154703 shares of AeroGrow common stock resulting in the issuance
of
580,136 shares of AeroGrow’s common stock to the Wentworth stockholders
representing 6.5% of the issued and outstanding common stock of AeroGrow
immediately after the Merger, the Offering and the Note Conversion.
In
February 2006, the Company entered into agreements with the convertible
debt
holders (Note 9) whereby certain debt holders converted their outstanding
debt
obligations into common stock of the Company at a conversion price of $3.00
per
share and certain other debt holders agreed to extend the maturity dates
of
their debt obligations from June 30, 2006 to December 31, 2006. The portion
of
debt converted immediately totaled $2,130,000 resulting in additional beneficial
conversion expense of $710,000 to account for the additional intrinsic
value
attributed to the conversion price change to $3 per share from the originally
issued $4 per share. Those debt holders who agreed to extend their debt
obligations from June 30, 2005 to December 31, 2005 received a conversion
price
of $3.50 from the originally issued $4 conversion price, resulting in additional
$120,000 discount to the currently outstanding debt obligations, which
will be
accreted to interest expense from February 2006 through December 31, 2006.
Of
the original amount of $3 million disclosed as outstanding in Note 9 as
of
December 31, 2005, $870,000 remains outstanding of which $30,000 is due
on June
30, 2006 and $840,000 is due December 31, 2006.
The
holders of securities issued in the private placement offering and the
convertible debt offering have registration rights under the common stock
for
underlying common stock held by them which requires that registration shall
be
completed within 150 days of the closing of the private placement offering,
with
default penalty provision equal to 1% of the original gross proceeds received
for each 30 day period past the 150 day period in which the registration
of
shares is delayed.
Aerogrow
International, Inc.
Proforma
Condensed Balance Sheet
December
31, 2005
(Unaudited)
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Proforma
|
|
|
|
|
Wentworth
I
|
|
Aerogrow
|
|
Total
|
|
DR
(CR)
|
|
|
Total
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,274
|
|
$
|
949,126
|
|
$
|
952,400
|
|
|
8,321,252
|
|
(d)
|
$
|
9,273,652
|
|
|
Subscriptions
receivable
|
|
|
-
|
|
|
840,000
|
|
|
840,000
|
|
|
|
|
|
|
840,000
|
|
|
Other
current assets
|
|
|
-
|
|
|
99,200
|
|
|
99,200
|
|
|
|
|
|
|
99,200
|
|
|
Fixed
assets, net
|
|
|
-
|
|
|
420,444
|
|
|
420,444
|
|
|
|
|
|
|
420,444
|
|
|
Debt
issuance costs
|
|
|
-
|
|
|
209,737
|
|
|
209,737
|
|
|
|
|
|
|
209,737
|
|
|
Other
assets
|
|
|
-
|
|
|
25,091
|
|
|
25,091
|
|
|
|
|
|
|
25,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,274
|
|
$
|
2,543,598
|
|
$
|
2,546,872
|
|
|
|
|
|
$
|
10,868,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
50,300
|
|
$
|
253,740
|
|
$
|
304,040
|
|
|
|
|
|
$
|
304,040
|
|
|
Accrued
liabilities-related party
|
|
|
12,151
|
|
|
-
|
|
|
12,151
|
|
|
|
|
|
|
12,151
|
|
|
Mandatorily
redeemable common stock
|
|
|
|
|
|
310,000
|
|
|
310,000
|
|
|
|
|
|
|
310,000
|
|
|
Convertible
debentures, net of discounts
|
|
|
|
|
|
2,095,260
|
|
|
2,095,260
|
|
|
1,607,635
|
|
(e)
|
|
487,625
|
|
|
Total
liabilities
|
|
|
62,451
|
|
|
2,659,000
|
|
|
2,721,451
|
|
|
|
|
|
|
1,113,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(580
|
)
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,000
|
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,000
|
)
|
(c)
|
|
|
|
|
Common
stock
|
|
|
38,000
|
|
|
5,579
|
|
|
43,579
|
|
|
(710
|
)
|
(d)
|
|
8,869
|
|
|
Additional
paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
580
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,697
|
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,319,252
|
)
|
(c)
|
|
|
|
|
|
|
|
168,697
|
|
|
11,741,388
|
|
|
11,910,085
|
|
|
(2,959,290
|
)
|
(d)
|
|
23,019,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
stock
|
|
|
(45,000
|
)
|
|
-
|
|
|
(45,000
|
)
|
|
(45,000
|
)
|
(b)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(161,697
|
)
|
(b)
|
|
|
|
|
Retained
(deficit) earnings
|
|
|
(220,874
|
)
|
|
(11,862,369
|
)
|
|
(12,083,243
|
)
|
|
1,352,365
|
|
(d)
|
|
(13,273,911
|
)
|
|
Total
stockholders' equity
|
|
|
(59,177
|
)
|
|
(115,402
|
)
|
|
(174,579
|
)
|
|
|
|
|
|
9,754,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
3,274
|
|
$
|
2,543,598
|
|
$
|
2,546,872
|
|
$
|
-
|
|
|
$
|
10,868,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Record
issuance of shares for reverse-merger with Wentworth I,
Inc.
|
|
(b)
|
Eliminate
Wentworth's stockholders' equity balances.
|
|
(c)
|
Record
Offering proceeds and stock issued
|
|
(d)
|
Record
modification, extension and conversion of convertible
debt
|
See
notes
to the unaudited proforma financial statements
Aerogrow
International, Inc.
Proforma
Condensed Statement of Operations
Year
Ended December 31, 2005
(Unaudited)
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Proforma
|
|
|
|
|
Wentworth
I
|
|
Aerogrow
|
|
Total
|
|
DR
(CR)
|
|
|
Total
|
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
$
|
-
|
|
|
Cost
of revenues
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
Gross
profit
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
& development
|
|
|
-
|
|
|
577,302
|
|
|
577,302
|
|
|
|
|
|
|
577,302
|
|
|
Professional
consulting fees
|
|
|
22,486
|
|
|
1,594,102
|
|
|
1,616,588
|
|
|
|
|
|
|
1,616,588
|
|
|
Salaries
and wages
|
|
|
|
|
|
1,314,009
|
|
|
1,314,009
|
|
|
|
|
|
|
1,314,009
|
|
|
Other
general and administrative expenses
|
|
|
18,222
|
|
|
3,422,309
|
|
|
3,440,531
|
|
|
59,757
|
|
(e)
|
|
3,500,288
|
|
|
Total
operating expenses
|
|
|
40,708
|
|
|
6,907,722
|
|
|
6,948,430
|
|
|
|
|
|
|
7,008,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(40,708
|
)
|
|
(6,907,722
|
)
|
|
(6,948,430
|
)
|
|
|
|
|
|
(7,008,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
|
-
|
|
|
(809,855
|
)
|
|
(809,855
|
)
|
|
1,352,365
|
|
(d)
|
|
(2,162,220
|
)
|
|
Total
other income (expense)
|
|
|
-
|
|
|
(809,855
|
)
|
|
(809,855
|
)
|
|
|
|
|
|
(2,162,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before provision for income taxes
|
|
|
(40,708
|
)
|
|
(7,717,577
|
)
|
|
(7,758,285
|
)
|
|
|
|
|
|
(9,170,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(40,708
|
)
|
$
|
(7,717,577
|
)
|
$
|
(7,758,285
|
)
|
$
|
1,412,123
|
|
|
$
|
(9,170,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
|
|
|
|
|
|
$
|
(0.56
|
)
|
|
|
|
|
$
|
(0.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
|
|
|
|
|
|
|
|
|
8,930,885
|
|
|
|
|
|
|
|
|
|
(d)
|
Record
modification, extension and conversion of convertible
debt
|
|
(e)
|
Record
reverse-merger expense.
|
See
notes
to the unaudited proforma financial statements
Aerogrow
International, Inc.
Notes
to
the Unaudited Proforma Financial Statements
December
31, 2005 and December 31, 2004
The
following unaudited pro forma condensed financial statements give effect
to the
merger transaction of Wentworth I Inc. (the “Company”) with and into Aerogrow
International, Inc. (“Aerogrow”). In addition, the unaudited pro forma condensed
financial statements give effect to a private placement offering which was
completed in conjunction with the merger as well as a conversion of convertible
debt securities of Aerogrow which converted contingent upon and conjunction
with
the merger and the private placement offering.
The
following unaudited pro forma condensed balance sheet combines the balance
sheet
of the Company with Aerogrow as of December 31, 2005, as if the merger, private
placement offering conversion of convertible debt securities and occurred
on
that date. The following unaudited pro forma condensed statements of operations
combine the results of operations of the Company with Aerogrow for the year
ended December 31, 2005 as if the aforementioned transaction had occurred
at the
beginning of such period.
The
unaudited pro forma condensed financial statements should be read in conjunction
with the separate historical financial statements of the Company and Aerogrow,
appearing elsewhere herein, and the historical financial statements of the
Company as filed with the Securities and Exchange Commission. These pro forma
financial statements are not necessarily indicative of the combined financial
position, had the acquisition occurred on December 31, 2005, or the combined
results of operations which might have existed for the periods indicated
or the
results of operations as they may be in the future.
On
January 12, 2006, Wentworth I, Inc. (“Wentworth,” the “Company”) entered into an
Agreement and Plan of Merger (“Agreement”) with AeroGrow International, Inc.
(“AeroGrow”) by which the Company will merge with and into AeroGrow, with
AeroGrow being the surviving corporation. This merger transaction may also
be
referred to as a reverse-merger. Prior to this acquisition, the Company had
no
operations and nominal assets and liabilities.
As
a
condition to the merger, AeroGrow conducted a private placement offering
of its
common stock and common stock purchase warrants to institutional investors
and
other high net worth individuals on a best efforts $5,000,000 minimum,
$12,000,000 maximum basis. The offering was a condition to the merger, and
the
merger was contingent on the offering. On February 24, 2006, AeroGrow completed
a sale of shares of its common stock and common stock purchase warrants in
a
private placement transaction (the “Offering”). AeroGrow sold 2,000,000 shares
of its common stock and warrants to purchase 2,000,000 shares of its common
stock and AeroGrow received gross proceeds of $10,000,000. Each Unit in the
Offering consisted of one share of common stock and a five-year warrant to
purchase one share of common stock at an exercise price of $6.25 per share.
The
price per Unit in the Offering was $5.00. AeroGrow is required to register
the
shares of its common stock issued in the Offering (as well as the shares
of
common stock underlying the Warrants) with the Securities and Exchange
Commission (“SEC”) for resale by the Investors. After commissions, expenses and
the reverse merger fees, AeroGrow received net proceeds of $8,321,252 in
the
Offering.
For
their
services as placement agent, AeroGrow paid Keating Securities a fee equal
to
10%, or $1,000,000, of the gross proceeds from the Offering. AeroGrow also
paid
Keating Securities a non-accountable expense allowance equal to 3%, or
approximately $300,000, of the gross proceeds from the Offering. In addition,
AeroGrow issued to Keating Securities and its designee’s five-year warrants to
purchase an aggregate of 200,000 shares of its common stock at an exercise
price
of $6.25 per share (“Agent Warrants”). The warrants are fully vested and may be
exercised on a cashless or net issuance basis.
|
4.
|
Conversion
of Convertible Debt
|
In
connection with the Merger, AeroGrow sought to modify the terms of certain
outstanding convertible notes issued in 2005 with an outstanding principal
balance of $3,000,000, originally due June 30, 2006 (“Convertible Notes”). The
note holders of this debt were offered the opportunity to convert the principal
and interest at a reduced conversion rate, extend the maturity for a lesser
reduced conversion rate than immediate conversion or maintain the current
terms
unchanged.
Effective
as of the closing of the merger, holders of Convertible Notes representing
$2,130,000 in principal amount converted their notes into AeroGrow common
stock
at a conversion price of $3.00 per share, a reduction from the original
conversion price of $4.00 per share. Accordingly, at the closing of the Merger
and Offering, AeroGrow issued 710,009 shares of its common stock to converting
note holders (“Note Conversion”). The converting note holders also were issued,
pursuant to the terms of the original note offering, five-year warrants to
purchase 426,000 shares of AeroGrow’s common stock at an exercise price of $6.00
per share. Each share of AeroGrow common stock and each warrant issued to
the
converting note holders will be restricted securities, and the holder thereof
may not sell, transfer or otherwise dispose of such securities without
registration under the Securities Act or an available exemption therefrom.
AeroGrow has agreed to register for resale the shares of AeroGrow’s common stock
issued to converting note holders (together with the shares of AeroGrow’s common
stock underlying the warrants issued to the note holders in connection with
the
original note issuance and upon the note conversion) on a registration statement
to be filed with the SEC.
Condensed
Balance Sheet - December 31, 2005
|
(a)
|
Record
issuance of 580,136 shares of AeroGrow common stock to shareholders
of
Wentworth I, Inc.
|
|
|
|
|
(b)
|
Eliminate
stockholders' equity balances of Wentworth I, Inc.
|
|
|
|
|
(c)
|
Record
receipt of offering proceeds, common stock issued and the associated
adjustments to additional paid in capital.
|
|
|
|
|
(d)
|
Record
modification, extension and conversion of convertible debt
and associated
adjustment to retained earnings for the charge to interest
expense as a
result of the write off of the original beneficial conversion
feature of
associated with the $2,130,000 in notes converted and the additional
beneficial conversion feature granted to such note
holders.
|
Condensed
Statement of Operations for the year ended December 31, 2005
|
(d)
|
Record
modification, extension and conversion of convertible debt
and associated
adjustment to retained earnings for the charge to interest
expense as a
result of the write off of the original beneficial conversion
feature of
associated with the $2,130,000 in notes converted and the additional
beneficial conversion feature granted to such note
holders.
|
|
(e)
|
Record
reverse-merger expense as a result of Wentworth I shareholder
deficit.
|
EXHIBIT 3.1
FILED # C7324-02
MAR 25 2002
ARTICLES OF INCORPORATION
OF
MAGNETICARE, INC.
FIRST. The name of the corporation is:
MAGNETICARE, INC.
SECOND. Its registered office in the State of Nevada is located at 1802
N Carson Street, Suite 212, Carson City NV 89701 that this Corporation may
maintain an office, or offices, in such other place within or without the State
of Nevada as may be from time to time designated by the Board of Directors, or
by the By-Laws of said Corporation, and that this Corporation may conduct all
Corporation business of every kind and nature, including the holding of all
meetings of Directors and Stockholders, outside the State of Nevada as well as
within the State of Nevada.
THIRD. The objects for which this Corporation is formed are: To engage
in any lawful activity, including, but not limited to the following: (A) Shall
have such rights, privileges and powers as may be conferred upon corporations by
any existing law. (B) May at any time exercise such rights, privileges and
powers, when not inconsistent with the purposes and objects for which this
corporation is organized.
(C) Shall have power to have succession by its corporate name for the
period limited in its certificate or articles of incorporation, and when no
period is limited, perpetually, or until dissolved and its affairs wound up
according to law.
(D) Shall have power to sue and be sued in any court of law or equity.
(E) Shall have power to make contracts.
(F) Shall have power to hold, purchase and convey real and personal estate
and to mortgage or lease any such real and personal estate with its franchises.
The power to hold real and personal estate shall include the power to take the
same by devise or bequest in the State of Nevada, or in any other state,
territory or country.
(G) Shall have power to appoint such officers and agents as the affairs of
the corporation shall require, and to allow them suitable compensation.
(H) Shall have power to make By-Laws not inconsistent with the constitution
or laws of the United States, or of the State of Nevada, for the management,
regulation and government of its affairs and property, the transfer of its
stock, the transaction of its business, and the calling and holding of meetings
of its stockholders.
(I) Shall have power to wind up and dissolve itself, or be wound up or
dissolved.
(J) Shall have power to adopt and use a common seal or stamp, and alter the
same at pleasure. The use of a seal or stamp by the corporation on any corporate
documents is not necessary. The corporation may use a seal or stamp, if it
desires, but such use or nonuse shall not in any way affect the legality of the
document.
1
(K) Shall have power to borrow money and contract debts when necessary for
the transaction of its business, or for the exercise of its corporate rights,
privileges or franchises, or for any other lawful purpose of its incorporation;
to issue bonds, promissory notes, bill of exchange, debentures, and other
obligations and evidences of indebtedness, payable at a specified time or times,
or payable upon the happening of a specified event or events, whether secured by
mortgage, pledge or otherwise, or unsecured, for money borrowed, or in payment
for property purchased, or acquired, or for any other lawful object.
(L) Shall have power to guarantee, purchase, hold, sell assign, transfer,
mortgage, pledge or otherwise dispose of the shares of the capital stock of, or
any bonds, securities or evidences of the indebtedness created by, any other
corporation or corporations of the State of Nevada, or any other state or
government, and, while owners of such stock, bonds, securities or evidences of
indebtedness, to exercise all the rights, powers and privileges of ownership,
including the right to vote, if any.
(M) Shall have power to purchase, hold, sell and transfer shares of its own
capital stock, and use therefore its capital, capital surplus, surplus, or other
property or fund.
(N) Shall have power to conduct business, have one or more offices, and
hold, purchase, mortgage and convey real and personal property in the State of
Nevada, and in any of the several states, territories, possessions and
dependencies of the United States, the District of Columbia, and any foreign
countries.
(O) Shall have power to do all and everything necessary and proper for the
accomplishment of the objects enumerated in its certificate or articles of
incorporation, or any amendment thereof, or necessary or incidental to the
protection and benefit of the corporation, and, in general, to carry on any
lawful business necessary or incidental to the attainment of the objects of the
corporation, whether or not such business is similar in nature to the objects
set forth in the certificate or articles of incorporation of the corporation, or
any amendment thereof.
(P) Shall have power to make donations for the public welfare or for
charitable, scientific or educational purposes.
(Q) Shall have power to enter into partnerships, general or limited, or
joint ventures, in connection with any lawful activities, as may be allowed by
law.
FOURTH. That the total authorized number of shares of common stock that
may be issued by the Corporation is 1500 with a par value of No par value and no
other class of stock shall be authorized. Said shares may be issued by the
corporation from time to time for such considerations as may be fixed by the
Board of Directors.
FIFTH. The governing board of this corporation shall be known as
directors, and the number of directors may from time to time be increased or
decreased in such manner as shall be provided by the By-Laws of this
Corporation, providing that the number of directors shall not be reduced to
fewer than one (1).
The name and post office address of the first Board of Directors shall be
one (1) in number and listed as follows:
NAME POST OFFICE ADDRESS
---- -------------------
Kevin Wessell 23120 W Lyons Ave. Suite 5 #223, Santa Clarita, CA 91321
|
2
SIXTH. The capital stock, after the amount of the subscription price,
or par value, has been paid in, shall not be subject to assessment to pay the
debts of the corporation.
SEVENTH. The name and post office address of the Incorporator signing
the Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
---- -------------------
Kevin Wessell 23120 W Lyons Avenue, Suite 5 #223, Santa Clarita, CA 91321
|
Representative, Presidential Services Incorporated.
EIGHTH. The resident agent for this corporation shall be: PRESIDENTIAL
SERVICES INCORPORATED The address of said agent, and, the registered or
statutory address of this corporation in the state of Nevada, shall be: 1802 N
Carson Street, Suite 212, Carson City NV 89701
NINTH. The Corporation is to have perpetual existence.
TENTH. In furtherance and not in limitation of the powers conferred by
statute the Board of Directors is expressly authorized: Subject to the By-Laws,
if any, adopted by the Stockholders, to make, alter or amend the By-Laws of the
Corporation.
To fix the amount to be reserved as working capital over and above its
capital stock paid in, to authorize and cause to be executed, mortgages and
liens upon the real and personal property of this Corporation.
By resolution passed by a majority of the whole Board, to designate one
(1) or more committees, each committee to consist of one or more of the
Directors of the Corporation, which, to the extent provided in the resolution,
or in the By-Laws of the Corporation, shall have and may exercise the powers of
the Board of Directors in the management of the business and affairs of the
Corporation. Such committee, or committees, shall have such name, or names as
may be stated in the By-Laws of the Corporation, or as may be determined from
time to time by resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the Stockholders
holding stock entitling them to exercise at least a majority of the voting power
given at a Stockholders meeting called for that purpose, or when authorized by
the written consent of the holders of at least a majority of the voting stock
issued and outstanding, the Board of Directors shall have power and authority at
any meeting to sell, lease or exchange all of the property and assets of the
Corporation, including its good will and its corporate franchises, upon such
terms and conditions as its board of Directors deems expedient and for the best
interests of the Corporation.
ELEVENTH. No shareholder shall be entitled as a matter of right to
subscribe for or receive additional shares of any class of stock of the
Corporation, whether now or hereafter authorized, or any bonds, debentures or
securities convertible into stock, but such additional shares of stock or other
securities convertible into stock may be issued or disposed of by the Board of
Directors to such persons and on such terms as in its discretion it shall deem
advisable.
TWELFTH. No director or officer of the Corporation shall be personally
liable to the Corporation or any of its stockholders for damages for breach of
fiduciary duty as a director or officer involving any act or omission of any
such director or officer; provided, however, that the foregoing provision shall
not eliminate or limit the liability of a director
3
or officer (i) for acts or omissions which involve intentional misconduct, fraud
or a knowing violation of law, or (ii) the payment of dividends in violation of
Section 78.300 of the Nevada Revised Statutes. Any repeal or modification of
this Article by the stockholders of the Corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director or officer of the Corporation for acts or omissions prior to such
repeal or modification.
THIRTEENTH. This Corporation reserves the right to, amend, alter,
change or repeal any provision contained in the Articles of Incorporation, in
the manner now or hereafter prescribed by statute, or by the Articles of
Incorporation and all rights conferred upon Stockholders herein are granted
subject to this reservation.
FOURTEENTH. In the matter of MAGNETICARE, INC., Presidential Services
Incorporated, a Nevada Corporation, hereby certifies that on this March 22, 2002
we accepted the appointment of Resident Agent of the above-entitled corporation
in accordance with Section 78.090, NRS 1957. Furthermore, that THE STREET
ADDRESS IN THE STATE IS 1802 N CARSON STREET, SUITE 212, CARSON CITY NV 89701,
WHICH IS THE DESIGNATED REGISTERED OFFICE OF THE CORPORATION. The MAILING
ADDRESS of Presidential Services Incorporated is 23120 WEST LYONS AVENUE, SUITE
5 #223, SANTA CLARITA, CA 91321, where mail shall be sent for processing.
("Every resident agent may have a separate mailing address such as a post office
box, which may be different from the street address. The street address of the
registered agent is the registered office of the corporation in this state."
Sec. 78.090, NRS 1957. [Moreover, there is no specification in Section 78.090,
NRS 1957 that the mailing address need be or not be in Nevada, therefore, it may
be reasonably assumed that it may be any address as long as the records are
maintained in the registered office as specified in NRS Section 78.105. A copy
certified by the secretary of state of the corporation's articles of
incorporation shall be sent to a central location for processing, then forwarded
to the office of the registered agent as required by statute.])
In witness whereof, I have hereto set my hand to this March 22, 2002.
I accepted the appointment as resident
agent for the above named business entity.
/S/ KEVIN W. WESSELL /S/ KEVIN W. WESSELL
-------------------------- ----------------------
Kevin W. Wessell Kevin W. Wessell
Signature of Incorporator Signature of Registered Agent
Representative Representative
Presidential Services Incorporated Presidential Services Incorporated
|
4
|
|
DEAN
HELLER
Secretary
of State
204
North Carson Street, Suite 1
Carson
City, Nevada 89701-4299
(775)
684-5708
Website:
secretaryofstate.biz
|
|
Certificate
of Amendment
(PURSUANT
TO NRS 78.385 AND 78.390)
|
|
Important: Read attached instructions
before completing form.
|
ABOVE
SPACE IS FOR OFFICE USE
ONLY
|
Certificate
of Amendment to Articles of Incorporation
For
Nevada Profit Corporations
(Pursuant
to NRS 78.385 and 78.390 - After Issuance of Stock)
|
1.
|
Name
of corporation:
|
Aero
Grow International, Inc.
|
2.
The
articles have been amended as follows (provide article numbers, if
available):
|
The
First Article of the Articles of Incorporation is hereby amended
to change
the name of the corporation. As amended it shall read, “FIRST: The name of
the corporation is AeroGrow International, Inc.”
|
|
|
3.
The
vote
by which the stockholders holding shares in the corporation entitling them
to
exercise at least a majority of the voting power, or such greater proportion
of
the voting power as may be required in the case of a vote by classes or series,
or as may be required by the provisions of the articles of incorporation have
voted in favor of the amendment is: 3,260,470 shares of common stock, the only
capital stock issued and outstanding and entitled to vote approved the
amendment, representing 57.8% of the issued and outstanding stock of such
class.*
4.
Effective
date of filing (optional):
_________________________________________________________________________________
(must
not be later than 90 days after the certificate is filed)
5.
Officer
Signature (required): _________________________
_
/s/
W.
Michael Bissonnette______________________________________
W.
Michael
Bissonnette, Chief Executive Officer
*If
any
proposed amendment would alter or change any preference or any relative or
other
right given to any class or series of outstanding shares, then the amendment
must be approved by the vote, in addition to the affirmative vote otherwise
required, of the holders of shares representing a majority of the voting power
of each class or series affected by the amendment regardless of limitations
or
restrictions on the voting power thereof.
IMPORTANT:
Failure
to include any of the above information and submit the proper fees may cause
this filing to be rejected.
SUBMIT
IN DUPLICATE
|
This form must be
accompanied by
appropriate fees. See attached fee schedule.
|
Nevada
Secretary of State AM 78.365 Amend
2003
|
|
|
Revised
on
11/03/03
|
149605.3
EXHIBIT
3.3
AMENDED
BYLAWS OF
AEROGROW
INTERNATIONAL, INC.
ARTICLE
I
IDENTIFICATION
Section
1.1.
Name.
The name
of the corporation is AeroGrow International, Inc.
Section
1.2.
Registered
Office and Resident Agent.
The
address of the registered office of the corporation is 1802 North Carson
Street,
Suite 212, Carson City, Nevada 89701, and the name of the resident agent
at this
address is Presidential Services Incorporated.
Section
1.3.
Fiscal
Year.
The
fiscal year of the corporation shall begin on the 1st day of January in each
year and end on the 31st day of December next following.
Section
1.4.
Offices.
The
corporation may also have offices at such other places both within and without
the State of Nevada as the Board of Directors may from time to time
determine.
ARTICLE
II
STOCK
Section
2.1.
Issuance
of Shares.
Shares
of stock may be issued for labor, services, personal property, real estate
or
leases thereof or for money from time to time by the Board of Directors.
Treasury shares may be disposed of by the corporation for such consideration
as
aforesaid from time to time by the Board of Directors.
Section
2.2.
Payment
of Shares.
The
consideration for the issuance of shares may be paid, in whole or in part,
in
money, in other property, as aforesaid, or in labor or services actually
performed for the corporation. When payment of the consideration for which
shares are to be issued shall have been received by the corporation, such
shares
shall be deemed to be fully paid and nonassessable. Future services shall
not
constitute payment or part payment for shares of the corporation. In the
absence
of fraud in the transaction, the judgment of the Board of Directors as to
the
value of the consideration received for shares shall be conclusive. No
certificate shall be issued for any share until the share is fully
paid.
Section
2.3.
Certificates
Representing Shares.
Each
holder of the shares of stock of the corporation shall be entitled to a
certificate signed by the President or a Vice President and the Secretary
or an
Assistant Secretary of the corporation, certifying the number of shares owned
by
him in the corporation. If the corporation shall be authorized to issue more
than one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other
special
rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set
forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, provided
that, in lieu of the foregoing requirements, there may be set forth on the
face
or back of the certificate which the corporation shall issue to represent
such
class or series of stock, a statement that the corporation will furnish without
charge to each stockholder who so requests the powers, designations, preferences
and relative, participating, optional or other special rights of each class
of
stock or series thereof and the qualifications, limitations or restrictions
of
such preferences and/or rights.
Section
2.4.
Transfer
of Stock.
Upon
surrender to the corporation or the transfer agent of the corporation of
a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, and subject to applicable
federal and state securities laws and contractual obligations, it shall be
the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its
books.
Section
2.5.
Facsimile
Signatures.
Any of
or all the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been
placed upon a certificate shall have ceased to be such officer, transfer
agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent
or
registrar at the date of issue.
Section
2.6.
Lost,
Stolen or Destroyed Stock Certificates; Issuance of New
Certificates.
The
Board of Directors may direct a new certificate or certificates to be issued
in
place of any certificate or certificates theretofore issued by the corporation
alleged to have been lost, stolen or destroyed upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost,
stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent
to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the
same
in such manner as it shall require and/or to give the corporation a bond
in such
sum as it may direct as indemnity against any claim that may be made against
the
corporation with respect to the certificate alleged to have been lost, stolen
or
destroyed.
ARTICLE
III
STOCKHOLDERS
Section
3.1.
Place
of Meetings.
Meetings
of the stockholders of the corporation shall be held at any place within
or
without the State of Nevada as may be designated in the notice
thereof.
Section
3.2.
Annual
Meetings.
Annual
meetings of stockholders shall be held at such date, time and place, either
within or without the State of Nevada, as may be designated from time to
time by
the Board of Directors and stated in the notice of the meeting, for the purpose
of electing a Board of Directors, and transacting such other business as
may
properly be brought before the meeting.
Section
3.3.
Special
Meetings.
Special
meetings of the stockholders may be called by the President, the Board of
Directors, or any two directors at the written request (stating the purpose
for
which the meeting is called in accordance with Section 3.14) of the holders
of
not less than twenty percent (20%) of all the shares entitled to vote at
the
meeting. Business transacted at any special meeting of stockholders shall
be
limited to the purposes stated in the notice. The time, date and place of
any
special meeting shall be determined by the Board of Directors. In the case
of a
special meeting requested by stockholders, the Board of Directors shall,
within
30 days from the date such request became effective in accordance with these
Bylaws, set a place, time and date for such meeting, which date shall be
not
later than 90 days from the date such request became effective in accordance
with these Bylaws.
Section
3.4.
Notice
of Meetings; Waiver.
Written
notice stating the place, day, and hour of the meeting and, in case of a
special
meeting the purpose or purposes for which the meeting is called, shall be
delivered not less than ten (10) nor more than sixty (60) days before the
date
of the meeting, either personally or by mail, by or at the direction of the
President, the Secretary, or the officer or persons calling the meeting,
to each
registered holder entitled to vote at such meeting. If mailed, such notice
shall
be deemed to be delivered when deposited in the United States mail addressed
to
the registered holder at his address as it appears on the stock transfer
books
of the corporation, with postage on it prepaid. Waiver by a stockholder in
writing of notice of a stockholders' meeting shall constitute a waiver of
notice
of the meeting, whether executed and/or delivered before or after such
meeting.
Section
3.5.
Quorum.
A
majority of the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of the stockholders. The stockholders
present at a duly organized meeting may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less
than a quorum.
Section
3.6.
Proxies.
A
stockholder may vote either in person or by proxy executed in writing by
the
stockholder or by his duly authorized attorney-in-fact. No proxy shall be
valid
after six months from the date of its creation, unless the stockholder provides
for a longer period, not exceeding seven years in the proxy. Each proxy shall
be
revocable unless expressly provided therein to be irrevocable or unless
otherwise made irrevocable by law. The notice of every meeting of the
stockholders may be accompanied by a form of proxy approved by the Board
of
Directors in favor of such person or persons as the Board of Directors may
select.
Section
3.7.
Action
Without a Meeting.
Any
action that may be taken at a meeting of the stockholders may be taken without
a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the actions taken, is signed by stockholders holding at least
a
majority of the voting power, except that if a different proportion of voting
power is required for such an action at a meeting, then that
proportion.
Section
3.8.
Adjournments.
Notwithstanding any other provisions of the Articles of Incorporation or
these
Bylaws, the holders of a majority of the shares of stock of the corporation
entitled to vote at any meeting, present in person or represented by proxy,
whether or not a quorum is present, shall have the power to adjourn the meeting
from time to time, without notice other than announcement at the meeting,
until
a quorum shall be present or represented. At any such adjourned meeting at
which
a quorum shall be present or represented, any business may be transacted
which
might have been transacted at the meeting originally called; provided, however,
that if the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice
of
the adjourned meeting shall be given to each stockholder of record entitled
to
vote at the adjourned meeting.
Section
3.9.
Voting.
Each
stockholder shall at every meeting of the stockholders be entitled to one
vote
in person or by proxy for each share of capital stock having voting power
held
by such stockholder. The act of a majority of the shares so represented in
person or by proxy at a meeting at which a quorum is present shall be the
act of
the stockholders, unless a greater number is required by applicable
law.
Section
3.10.
List
of Stockholders Entitled to Vote.
The
officer who has charge of the stock ledger of the corporation shall prepare
and
make, at least ten days before every meeting of stockholders, a complete
list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which
place
shall be specified in the notice of the meeting, or, if not so specified,
at the
place where the meeting is to be held. The list shall also be produced and
kept
at the time and place of the meeting during the whole time thereof, and may
be
inspected by any stockholder who is present.
Section
3.11.
Fixing
Record Date.
In order
that the corporation may determine the stockholders entitled to notice of
or to
vote at any meeting of stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to
receive
payment of any dividend or other distribution or allotment of any rights,
or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more than sixty nor
less
than ten days before the date of such meeting, nor more than sixty days prior
to
any other action. The Board of Directors shall not close the books of the
corporation against transfer of shares during the whole or any part of such
period. A determination of stockholders of record entitled to notice of or
to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date
for the
adjourned meeting.
Section
3.12.
Inspectors
of Stockholders' Request for Special Meeting.
In the
event of the delivery, in the manner provided by Sections 3.3 and 3.14, to
the
corporation of the requisite request for a special meeting of stockholders,
the
corporation shall engage reputable independent inspectors of elections for
the
purpose of promptly performing a ministerial review of the validity of the
request. For the purpose of permitting the inspectors to perform such review,
no
request for a special meeting of stockholders shall be effective until such
date
as the independent inspectors certify to the corporation that the request
delivered to the corporation in accordance with Sections 3.3 and 3.14 represents
at least twenty percent (20%) of all the shares entitled to vote at the meeting.
Nothing contained in this paragraph shall in any way be construed to suggest
or
imply that the Board of Directors or any stockholder shall not be entitled
to
contest the validity of any such request, whether before or after such
certification by the independent inspectors, or to take any other action
(including, without limitation, the commencement, prosecution or defense
of any
litigation with respect thereto, and the seeking of injunctive relief in
such
litigation).
Section
3.13.
Effectiveness
of Stockholders' Request for Special Meeting.
Every
stockholder request for a special meeting shall bear the date of signature
of
each stockholder who signs the request, and no such request shall be effective
to cause the corporation to call a special meeting unless, within 60 days
of the
earliest dated request received in accordance with Sections 3.3 and 3.14,
requests signed by twenty percent (20%) of all the shares entitled to vote
at
the meeting are delivered to the corporation in the manner prescribed in
Sections 3.3 and 3.14. Each such request shall be valid and effective only
if
each stockholder submitting such request was a record holder of the shares
covered by such stockholder's request both as of the date such submitting
stockholder signed the request and as of the date requests signed by twenty
percent (20%) of all the shares entitled to vote at the meeting are delivered
to
the corporation in the manner prescribed in Sections 3.3 and 3.14.
Section
3.14.
Business
to be Brought Before Any Meeting of Stockholders.
To be
properly brought before any meeting of stockholders, business must be either
(a)
specified in the notice of meeting (or any supplement thereto) given by or
at
the direction of the Board of Directors, (b) otherwise brought before the
meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder of the corporation who
is a
stockholder of record at the time of giving of notice provided for in Section
3.3 and this Section 3.14, who shall be entitled to vote at such meeting
and who
complies with the notice procedures set forth in Section 3.3 and this Section
3.14. In addition to any other applicable requirements, for business to be
brought before any meeting of stockholders by a stockholder of the corporation,
the stockholder must have given timely notice thereof in writing to the
Secretary of the corporation. To be timely, a stockholder's notice related
to
the business to be conducted at any annual meeting must be delivered to or
mailed and received at the principal executive offices of the corporation
not
less than 90 days prior to the anniversary date of the immediately preceding
annual meeting of stockholders of the corporation in the case of each subsequent
annual meeting of stockholders. To be timely, a stockholder's notice related
to
the business to be conducted at any special meeting must be submitted to
the
corporation with the request for a special meeting of stockholders. A public
announcement of an adjournment or postponement of an annual meeting shall
not
commence a new time period for the giving of stockholder notices. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (i) a brief description
of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (ii) the name and address, as they appear on
the
corporation's books, of the stockholder proposing such business, (iii) the
acquisition date, the class and the number of shares of voting stock of the
corporation which are owned beneficially by the stockholder, (iv) any material
interest of the stockholder in such business, and (v) a representation that
the
stockholder intends to appear in person or by proxy at the meeting to bring
the
proposed business before the meeting.
Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted
at the
meeting except in accordance with the procedures set forth in this Section
3.14.
The
chairman of the meeting shall, if the facts warrant, determine and declare
to
the meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section 3.14, and if the chairman
should
so determine, the chairman shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
Notwithstanding
the foregoing provisions of this Section 3.14, a stockholder shall also comply
with all applicable requirements of the Securities Exchange Act of 1934,
as
amended, and the rules and regulations thereunder with respect to the matters
set forth in this Section 3.14.
ARTICLE
IV
BOARD
OF DIRECTORS
Section
4.1.
Number
and Qualifications.
The
business and affairs of the corporation shall be managed by a Board of
Directors. The number of directors shall be fixed in such manner as may be
determined by the vote of not less than a majority of the directors then
in
office, but shall be not less than one (1) nor more than fifteen (15). A
director need not be a stockholder of the corporation.
Section
4.2.
Election.
At each
annual meeting of stockholders, the stockholders shall elect directors to
hold
office until the next succeeding annual meeting. Each director shall hold
office
for the term for which he is elected and until his successor shall be elected
and qualified or until his earlier resignation or removal. A majority of
the
directors may elect from its members a chairman, who shall also serve as
chairman of any annual or special meeting of the stockholders. The chairman,
if
any, shall hold this office until his successor shall have been elected and
qualified.
Section
4.3.
Vacancies.
Any
vacancy occurring in the Board of Directors, including vacancies resulting
from
any increase in the authorized number of directors, may be filled by the
affirmative vote of the majority of the remaining directors though less than
a
quorum of the Board of Directors. A director elected to fill a vacancy shall
be
elected for the unexpired term of his predecessor in office, subject to earlier
removal or resignation.
Section
4.4.
Place
of Meeting.
The
Board of Directors meetings, annual, regular or special, may be held either
within or without the State of Nevada.
Section
4.5.
Regular
Meetings.
Regular
meetings of the Board of Directors shall be held at such place or places
within
or without the State of Nevada, at such hour and on such day as may be fixed
by
resolution of the Board of Directors, without further notice of such
meetings.
Section
4.6.
Special
Meetings.
Special
meetings of the Board of Directors may be held upon notice by letter, facsimile,
cable or electronic mail, delivered for transmission not later than one day
immediately preceding the day for the meeting, upon the call of the President
or
Secretary of the corporation at any place within or without the State of
Nevada.
Notice of any meeting of the Board of Directors may be waived in writing
signed
by the person or persons entitled to the notice, whether before or after
the
time of the meeting. Neither the business to be transacted at, nor the purpose
of, any meeting of the Board of Directors need be specified in the notice
or
waiver of notice of the meeting.
Section
4.7.
Quorum.
A
majority of the number of directors holding office shall constitute a quorum
for
the transaction of business. The act of the majority of the directors present
at
a meeting at which a quorum has been achieved shall be the act of the Board
of
Directors unless the act of a greater number is required by applicable law.
Section
4.8.
Action
Without a Meeting.
Any
action that may be taken at a meeting of the directors, or of a committee,
may
be taken without a meeting if a consent in writing, setting forth the actions
taken, shall be signed by all of the directors, or all of the members of
the
committee, as the case may be. Such writing(s) shall be manually executed
if
practicable, but if circumstances so require, effect shall be given to written
consent transmitted by telegraph, telex, telecopy or similar means of visual
data transmission.
Section
4.9.
Resignations.
Any
director may resign at any time by written notice to the corporation. Any
such
resignation shall take effect at the date of receipt of such notice or at
any
later time specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective.
Section
4.10.
Telephonic
Meetings Permitted.
Members
of the Board of Directors, or any committee designated by the board, may
participate in a meeting of such board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting
pursuant to this Bylaw shall constitute presence in person at such
meeting.
Section
4.11.
Compensation.
Directors shall be entitled to such compensation for their services as may
be
approved by the Board of Directors including, if so approved by resolution
of
the Board of Directors, a fixed sum and expenses of attendance at each regular
or special meeting or any committee thereof. No such payment shall preclude
any
director from serving the corporation in any other capacity and receiving
compensation therefor.
Section
4.12.
Removal.
Except
as provided in the Articles of Incorporation or by law, any director or the
entire Board of Directors may be removed, with or without cause, by the holders
of a majority of shares entitled to vote at an election of directors. The
notice
calling such meeting shall state the intention to act upon such matter, and,
if
the notice so provides, the vacancy or vacancies caused by such removal may
be
filled at such meeting by a vote of the majority of the shares entitled to
vote
at an election of directors.
Section
4.13.
Committees.
The
Board of Directors may, by resolution passed by a majority of the whole Board,
designate one or more committees, each committee to consist of two or more
of
the directors of the corporation. The Board may designate one or more directors
as alternate members of any committee. The alternate members of any committee
may replace any absent or disqualified member at any meeting of the committee.
Any such committee, to the extent provided in a resolution of the Board of
Directors, shall have and may exercise all the powers and authority of the
Board
of Directors in the management of the business and affairs of the corporation,
and may authorize the seal of the corporation to be affixed to all papers
which
may require it; but no such committee shall have such power or authority
in
reference to amending the Articles of Incorporation, adopting an agreement
of
merger or consolidation, recommending to the stockholders the sale, lease
or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the Bylaws of the corporation; and,
unless the resolution or the Articles of Incorporation expressly so provide,
no
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have
such
name or names as may be determined from time to time by resolution adopted
by
the Board of Directors. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required. Members
of
special or standing committees shall be entitled to receive such compensation
for serving on such committees as the Board of Directors shall
determine.
Section
4.14.
Nomination
of Directors.
Only
persons who are nominated in accordance with the following procedures shall
be
eligible for election as directors. Nominations of persons for election to
the
Board of Directors of the corporation may be made at a meeting of stockholders
(a) by or at the direction of the Board of Directors or (b) by any stockholder
of the corporation who is a stockholder of record at the time of giving of
notice provided for in this Section 4.14, who shall be entitled to vote for
the
election of directors at the meeting and who complies with the notice procedures
set forth in this Section 4.14. Such nominations, other than those made by
or at
the direction of the Board of Directors, shall be made pursuant to timely
notice
in writing to the Secretary of the corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the corporation (i) with respect to an election to be held at
the
annual meeting of the stockholders of the corporation, not later than 90
days
prior to the anniversary date of the immediately preceding annual meeting
of
stockholders of the corporation, and (ii) with respect to an election to
be held
at a special meeting of stockholders of the corporation for the election
of
directors, not later than the closing of business on the 10th day following
the
day on which such notice of the date of the meeting was mailed or public
disclosure of the date of the meeting was made, whichever first occurs. Such
stockholder's notice to the Secretary shall set forth (a) as to each person
whom
the stockholder proposes to nominate for election or re-election as a director,
all information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors, or is otherwise required,
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended
(including the written consent of such person to be named in the proxy statement
as a nominee and to serve as a director if elected); and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on
the
corporation's books, of such stockholder, and (ii) the class and number of
shares of capital stock of the corporation which are beneficially owned by
the
stockholder. At the request of the Board of Directors, any person nominated
by
the Board of Directors for election as a director shall furnish to the Secretary
of the corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee.
In
the
event that a person is validly designated as nominee to the Board and shall
thereafter become unable or unwilling to stand for election to the Board
of
Directors, the Board of Directors or the stockholder who proposed such nominee,
as the case may be, may designate a substitute nominee.
No
person
shall be eligible to serve as a director of the corporation unless nominated
in
accordance with the procedures set forth in this Section 4.14. The chairman
of
the meeting of stockholders shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the procedures
prescribed by the Bylaws, and if the chairman should so determine, the chairman
shall so declare to the meeting and the defective nomination shall be
disregarded.
Notwithstanding
the foregoing provisions of this Section 4.14, a stockholder shall also comply
with all applicable requirements of the Securities Exchange Act of 1934,
as
amended, and the rules and regulations thereunder with respect to the matters
set forth in this Section 4.14.
ARTICLE
V
OFFICERS
Section
5.1.
Officers.
The
officers of the corporation shall be appointed by the Board of Directors
and may
consist of a President, Secretary and Treasurer, and may also include a Chairman
of the Board, one or more Vice Presidents, Assistant Secretaries, Assistant
Treasurers, or such other officers or assistant officers or agents as may
be
provided herein, or otherwise deemed necessary, from time to time by the
Board
of Directors. Officers need not be directors of the corporation. Each officer
so
elected shall hold office until his successor is elected and qualified, but
shall be subject to removal at any time by the vote or written consent of
a
majority of the directors. Any officer may resign at any time upon written
notice to the Secretary of the corporation.
Section
5.2.
Vacancies.
Whenever
any vacancies shall occur in any office by death, resignation, increase in
the
number of offices of the corporation, or otherwise, the same shall be filled
by
the Board of Directors, and the officer so elected shall hold office until
his
successor is elected and qualified, subject to removal as
aforesaid.
Section
5.3.
Chairman
of the Board of Directors.
The
Chairman of the Board of Directors shall preside at all meetings of the
directors, discharge all duties incumbent upon the presiding officer and
perform
such other duties as the Board of Directors may prescribe.
Section
5.4.
President.
The
President shall have active executive management of the operations of the
corporation, subject, however, to the control of the Board of Directors.
He
shall preside at all meetings of stockholders, discharge all the duties
incumbent upon a presiding officer, and perform such other duties as these
Bylaws provides or the Board of Directors may prescribe. The President shall
have full authority to execute proxies in behalf of the corporation, to vote
stock owned by it in any other corporation, and to execute powers of attorney
appointing other corporations, partnerships, or individuals the agent of
the
corporation.
Section
5.5.
Vice
President.
Each
Vice President shall perform such duties as these Bylaws may provide or the
Board of Directors may prescribe. In the absence of the President, or if
he is
unable or unwilling to perform his duties, the Vice President, if only one,
or
such Vice President, if more than one, who is so-designated by the Board
will
assume the duties and responsibilities of the President.
Section
5.6.
Secretary.
The
Secretary shall attend all meetings of the stockholders and of the Board
of
Directors, and shall keep a true and complete record of the proceedings of
these
meetings. He shall be custodian of the records of the corporation. He shall
attend to the giving of all notices and shall perform such other duties as
these
Bylaws may provide or the Board of Directors may prescribe.
Section
5.7.
Treasurer.
The
Treasurer shall keep correct and complete records of account, showing accurately
at all times the financial condition of the corporation. He shall be the
legal
custodian of all moneys, notes, securities and other valuables that may from
time to time come into the possession of the corporation. He shall immediately
deposit all funds of the corporation coming into his hands in some reliable
bank
or other depositary to be designated by the Board of Directors, and shall
keep
this bank account in the name of the corporation. He shall furnish at meetings
of the Board of Directors, or whenever requested, a statement of the financial
condition of the corporation, and shall perform such other duties as these
Bylaws may provide or the Board of Directors may prescribe. The Treasurer
may be
required to furnish bond in such amount as shall be determined by the Board
of
Directors.
Section
5.8.
Transfer
of Authority.
In case
of the absence of any officer of the corporation, or for any other reason
that
the Board of Directors may deem sufficient, the Board of Directors may transfer
the powers or duties of that officer to any other officer or to any director
or
employee of the corporation, provided a majority of the full Board of Directors
concurs.
ARTICLE
VI
NEGOTIABLE
INSTRUMENTS, DEEDS, AND CONTRACTS
All
checks, drafts, notes, bonds, bills of exchange and orders for the payment
of
money of the corporation; all deeds, mortgages and other written contracts
and
agreements to which the corporation shall be a party; and all assignments
or
endorsements of stock certificates, registered bonds, or other securities
owned
by the corporation shall, unless otherwise required by law, or otherwise
authorized by the Board of Directors as hereinafter set forth, be signed
by the
President or by anyone of the following officers: Vice President, Secretary,
or
Treasurer. The Board of Directors may designate one or more persons, officers
or
employees of the corporation, who may, in the name of the corporation and
in
lieu of, or in addition to, those persons hereinabove named, sign such
instruments; and may authorize the use of facsimile signatures of any of
such
persons. Any shares of stock issued by any other corporation and owned or
controlled by the corporation may be voted at any stockholders' meeting of
the
other corporation by the President of the corporation, if he be present:
or, in
his absence, by the Secretary of the corporation and, in the event both the
President and Secretary shall be absent, then by such person as the President
of
the corporation shall, by duly executed proxy designate to represent to the
corporation at such stockholder's meeting.
ARTICLE
VII
INDEMNIFICATION
OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS;
INSURANCE
Section
7.1.
Indemnity
for Claims Not in Name of Corporation.
The
corporation must indemnify, to the maximum extent permitted by the law, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or in the
right
of the corporation, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or
proceeding if he, acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and,
with respect to any criminal action or proceeding, had no reasonable cause
to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption
that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and
that, with respect to any criminal action or proceeding, he had reasonable
cause
to believe that his conduct was unlawful.
Section
7.2.
Indemnity
for Claims in Name of Corporation.
The
corporation must indemnify, to the maximum extent permitted by the law, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that
he is
or was a director, officer, employee or agent of the corporation, or is or
was
serving at the request of the corporation as a director, officer, employee
or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action
or
suit if he acted in good faith and in a manner which he reasonably believed
to
be in or not opposed to the best interests of the corporation, but no
indemnification shall be made in respect of any claim, issue or matter as
to
which such person has been adjudged to be liable for negligence or misconduct
in
the performance of his duty to the corporation unless and only to the extent
that the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability but in view of all
the
circumstances of the case, such person is fairly and reasonably entitled
to
indemnity for such expenses as the court deems proper.
Section
7.3.
Success
on Merits.
To the
extent that a director, officer, employee or agent of the corporation has
been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in sections 7.1 and 7.2, or in defense of any claim,
issue or matter therein, he shall be indemnified by the corporation against
expenses, including attorneys' fees, actually and reasonably incurred by
him in
connection therewith.
Section
7.4.
Determination
of Standard of Conduct.
Any
indemnification under sections 7.1 and 7.2, unless ordered by a court, shall
be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or
agent
is proper in the circumstances because he has met the applicable standard
of
conduct set forth in sections 7.01 and 7.02. Such determination shall be
made:
7.4.1
by
the
stockholders;
7.4.2
by
the
Board of Directors by majority vote of a quorum consisting of directors who
were
not parties to such act, suit or proceeding;
7.4.3
if
such a
quorum of disinterested directors so orders, by independent legal counsel
in a
written opinion; or
7.4.4
if
such a
quorum of disinterested directors cannot be obtained, by independent legal
counsel in a written opinion.
Section
7.5.
Expenses.
Expenses
incurred in defending a civil, criminal, administrative or investigative
action,
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the Board
of
Directors in the specific case upon receipt of an undertaking by or on behalf
of
the director, officer, employee or agent to repay such amount unless it is
ultimately determined that he is entitled to be indemnified by the corporation
as authorized in this section.
Section
7.6.
Other
Sources of Indemnity.
The
indemnification provided by this section: (a) does not exclude any other
rights
to which a person seeking indemnification may be entitled under any article
of
incorporation, agreement, vote of stockholders or disinterested directors
or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office; and (b) shall continue as to
a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section
7.7.
Insurance.
The
corporation may purchase and maintain insurance on behalf of any person who
is
or was a director, officer, employee or agent of the corporation, or is or
was
serving at the request of the corporation as a director, officer, employee
or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him and incurred by him
in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under
the provisions of this section.
ARTICLE
VIII
AMENDMENTS
The
power
to alter, amend or repeal these Bylaws, or adopt new Bylaws, is vested in
the
Board of Directors, but the affirmative vote of a majority of the Board of
Directors holding office shall be necessary to effect any such
action.
EXHIBIT
4.1
A
ERO
G
ROW
I
NTERNATIONAL
,
I
NC.
I
NCORPORATED
UNDER THE LAWS OF THE
S
TATE
OF
N
EVADA
AUTHORIZED:
75,000,000 COMMON SHARES, $0.001 PAR VALUE
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This
Certifies That
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see
reverse for
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certain
definitions
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Is
The Owner Of
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CUSIP
00768M103
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FULLY
PAID AND NON-ASSESSABLE COMMON SHARES, $0.001 PAR VALUE OF
AEROGROW
INTERNATIONAL, INC.
transferable
on the books of this Corporation in person or by attorney upon surrender
of this
Certificate duly endorsed or assigned. This Certificate and the shares
represented hereby are subject to the laws of the State of Nevada, and to
the
Articles of Incorporation and Bylaws of the Corporation, as now or hereafter
amended. This Certificate is not valid until countersigned by the Transfer
Agent.
In
Witness Whereof,
the
Corporation has caused this Certificate to be signed by the facsimile signatures
of its duly authorized officers and to be sealed with the facsimile seal
of the
Corporation.
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/s/
Michael Bissonnette, President
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/s/
Jerry Gutterman, Secretary
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COUNTERSIGNED:
CORPORATE
STOCK TRANSFER, INC.
3200
Cherry Creek Drive South, Suite 430, Denver, CO 80209
By:
Transfer
Agent and Registrar Authorized Officer
[AEROGROW
INTERNATIONAL, INC. NEVADA CORPORATE SEAL]
AEROGROW
INTERNATIONAL, INC.
Corporate
Stock Transfer, Inc.
Transfer
Fee: As Required
The
following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
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TEN
COM
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--as
tenants in common
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TEN
ENT
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--as
tenants by the entireties
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JTT
EN
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--
as joint tenants with right of survivorship and not as tenants
in
common
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UNIF
GIF TMIN ACT
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--_______________
Custodian for _______________
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under
Uniform Gifts to Minors Act of
____________________
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Additional
abbreviations may also be used though not in the above
list.
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For value received ________________________
hereby sell, assign and transfer unto
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PLEASE INSERT SOCIAL SECURITY OR
OTHER
IDENTIFYING NUMBER OF ASSIGNEE
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Please print or type name and address
of
assignee
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Shares of the Common Stock represented
by the
within Certificate and do hereby irrevocably constitute and
appoint
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Attorney to transfer the said stock
on the
books of the within-named Corporation, with full power of substitution
in
the premises.
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Dated ______________________
20__________
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SIGNATURE
GUARANTEED:
X
X
THE
SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE
FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER. THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan Associations
and
Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM.
EXHIBIT
4.2
THIS
WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT AND THE WARRANT SHARES ISSUABLE UPON EXERCISE
OF
THIS WARRANT MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF
SUCH REGISTRATION OR PURSUANT TO AN EXEMPTION THEREFROM UNDER THE SECURITIES
ACT
AND SUCH STATE LAWS, SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY
TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. THIS
WARRANT AND THE COMPANY'S SUBSCRIPTION AGREEMENT WITH THE HOLDER SET FORTH
THE
COMPANY’S OBLIGATIONS TO REGISTER FOR RESALE THE WARRANT SHARES. A COPY OF SUCH
SUBSCRIPTION AGREEMENT IS AVAILABLE FOR INSPECTION AT THE COMPANY’S OFFICE.
THIS
WARRANT MAY NOT, IN ANY EVENT, BE TRANSFERRED TO ANY PERSON OR ENTITY THAT
IS
NOT AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501, PROMULGATED UNDER
THE
ACT.
___________
Warrants
Void
after 5:00 p.m., Colorado time on _______________, 2010
COMMON
STOCK
PURCHASE
WARRANT
OF
AEROGROW
INTERNATIONAL, INC.
AEROGROW
INTERNATIONAL, INC., a Nevada corporation (the “Company”), hereby certifies
that, for value received
,
______________
(the
“Warrant Holder”) is the owner of the number of common stock purchase warrants
(“Warrants”) specified above, each of which entitles the holder thereof to
purchase, at any time during the period commencing on the Commencement Date
(as
defined herein) and ending on the Expiration Date (as defined herein), one
fully
paid and non-assessable share of common stock, par value $.001 per share
(“Common Stock”), of the Company at a purchase price equal to the Exercise Price
(as defined in Section 1.2) in lawful money of the United States of America
in
cash, subject to adjustment as hereinafter provided. These Warrants are part
of
the duly authorized issuance of Units of the Company, limited in aggregate
principal amount to $3,000,000 of notes included in said Units, issued or
to be
issued by the Company pursuant to a certain private placement memorandum
dated
June 6, 2005.
1.
WARRANT;
EXERCISE PRICE
.
1.1
Each
Warrant shall entitle the Warrant Holder the right to purchase one share
of
Common Stock of the Company (individually, a “Warrant Share” severally, the
“Warrant Shares”).
1.2
The
purchase price payable upon exercise of each Warrant (“Exercise Price”) shall be
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
prior
to the payment or conversion of the Notes (“Registered Offering”), 100% of the
per share offering price of Common Stock in the first such Registered Offering
(“Public Offering Price”). The Exercise Price and number of Warrant Shares
purchasable pursuant to each Warrant are subject to adjustment as provided
in
Section 8.
2.
EXERCISE
OF WARRANT; EXPIRATION DATE
.
2.1
This
Warrant is exercisable during the period commencing on ___________, 2005
[the
closing date]
(“Commencement Date”) and ending on the Expiration Date (as defined below in
Section 2.5), in whole or from time to time in part, at the option of the
Warrant Holder, upon surrender of this Warrant to the Company together with
a
duly completed form of exercise attached hereto and payment of an amount
equal
to the then applicable Exercise Price multiplied by the number of Warrant
Shares
then being purchased upon such exercise.
2.2
Each
exercise of this Warrant shall be deemed to have been effected immediately
prior
to the close of business on the day on which this Warrant shall have been
surrendered to the Company as provided in Section 2.1. At such time, the
person
or persons in whose name or names any certificates for Warrant Shares shall
be
issuable upon such exercise as provided in subsection 2.3 below shall be
deemed
to have become the holder or holders of record of the Warrant Shares represented
by such certificates.
2.3
Within
three business days after the exercise of the purchase right represented
by this
Warrant, the Company at its expense will use its best efforts to cause to
be
issued in the name of, and delivered to, the Warrant Holder, or, subject
to the
terms and conditions hereof, to such other individual or entity as such Warrant
Holder (upon payment by such Warrant Holder of any applicable transfer taxes)
may direct:
(a)
a
certificate or certificates for the number of full Warrant Shares to which
such
Warrant Holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which such Warrant Holder would otherwise be entitled,
cash
in an amount determined pursuant to Section 2.4 hereof, and
(b)
in
case
such exercise is in part only, a new Warrant or Warrants (dated the date
hereof)
of like tenor, stating on the face or faces thereof the number of shares
currently stated on the face of this Warrant minus the number of such shares
purchased by the Warrant Holder upon such exercise as provided in subsection
2.1
(prior to any adjustments made thereto pursuant to the provisions of this
Warrant).
2.4
The
Company shall not be required upon the exercise of this Warrant to issue
any
fractional shares, but shall make an adjustment thereof in cash on the basis
of
the “last sale price” (as defined below) of the Company's Common Stock on the
trading day immediately prior to the date of exercise. For purposes of this
Section 2.4, “last sale price” shall mean (i) if the Common Stock is listed on a
national securities exchange or quoted on the Nasdaq National Market, Nasdaq
SmallCap Market or NASD OTC Bulletin Board (or successor such as the Bulletin
Board Exchange), the last sale price of the Common Stock in the principal
trading market for the Common Stock as reported by the exchange, Nasdaq or
the
NASD, as the case may be; (ii) if the Common Stock is not listed on a national
securities exchange or quoted on the Nasdaq National Market, Nasdaq SmallCap
Market or the NASD OTC Bulletin Board (or successor such as the Bulletin
Board
Exchange), but is traded in the residual over-the-counter market, the closing
bid price for the Common Stock on the last trading day preceding the date
in
question for which such quotations are reported by the Pink Sheets, LLC or
similar publisher of such quotations; and (iii) if the fair market value
of the
Common Stock cannot be determined pursuant to clause (i) or (ii) above, such
price as the Board of Directors of the Company shall determine, in good faith.
2.5
The
term
“Expiration Date” shall mean 5:00 p.m., Colorado time on ____________, 2010
[five-year
anniversary of the closing date]
,
or if
such date shall in the State of Colorado be a holiday or a day on which banks
are authorized to close, then 5:00 p.m., Colorado time the next following
day
which in the State of Colorado is not a holiday or a day on which banks are
authorized to close or in the event of any merger, consolidation, or sale
of
substantially all the assets of the Company as, an entirety, resulting in
any
distribution to the Company’s stockholders, prior to the Expiration Date, the
Warrant Holder shall have the right to exercise this Warrant commencing at
such
time through the Expiration Date into the kind and amount of shares of stock
and
other securities and property (including cash) receivable by a holder of
the
number of shares of Common Stock into which this Warrant might have been
exercisable immediately prior thereto.
2.6
The
Company has engaged Keating Securities, LLC (“Keating”), on an exclusive basis,
as its agent for the solicitation of this Warrant. In each instance in which
a
Warrant is exercised through the solicitation by Keating, the Company will
pay
from the proceeds received upon exercise of the Warrant, a fee of 5% of the
purchase price to Keating. Notwithstanding the foregoing, no fee shall be
payable to Keating under this Section 2.6 in the event the Registered Offering
is declared effective under the Securities Act prior the first anniversary
of
the final closing of the Unit offering to which this issuance relates. The
provisions of this Section 2.6 may not be modified, amended or deleted without
the prior written consent of Keating.
2.7
This
Warrant is redeemable by the Company, in whole and not in part, on fifteen
(15)
days prior written notice at a redemption price of $0.0001 per share of Common
Stock underlying this Warrant, at any time commencing the date of first issuance
of this Warrant, provided an effective registration statement is in effect
covering the Warrant Shares, and further provided that on all twenty of the
trading days ending on the third day prior to the day on which the redemption
notice is given, (i) the “last sale price,” as defined in Section 2.4 hereof,
has been at least $7.50 per share of Common Stock, as adjusted for the events
set forth in Section 8 hereof, and (ii) the average daily trading volume
(as
adjusted to exclude the highest and lowest volume trading days for the period)
exceeds 50,000 shares per day. The redemption notice shall be mailed to the
Warrant Holder at its, his or her address appearing on the books and records
of
the Company. Warrant Holders will have the right to exercise this Warrant
until
the close of business on the date fixed for redemption.
3.
REGISTRATION
AND TRANSFER ON COMPANY BOOKS
.
3.1
The
Company (or an agent of the Company) will maintain a register containing
the
names and addresses of the Warrant Holders. Any Warrant Holder may change
its,
his or her address as shown on the warrant register by written notice to
the
Company requesting such change.
3.2
The
Company shall register upon its books any transfer of a Warrant upon surrender
of same as provided in Section 5.
4.
RESERVATION
OF SHARES
.
The
Company will at all times reserve and keep available, solely for issuance
and
delivery upon the exercise of this Warrant, such Warrant Shares and other
stock,
securities and property, as from time to time shall be issuable upon the
exercise of this Warrant.
As
long
as the Warrant shall be outstanding, the Company shall use its best efforts
to
cause all Warrant Shares issuable upon exercise of the Warrants to be listed
(subject to official notice of issuance) on each securities exchange (or,
if
applicable on Nasdaq or the OTC Bulletin Board or any successor trading market)
on which the Common Stock is then listed and/or quoted.
5.
EXCHANGE,
TRANSFER, ASSIGNMENT OR LOSS OR MUTILATION OF WARRANTS
.
This
Warrant is exchangeable, without expense, at the option of the Warrant Holder,
upon presentation and surrender hereof to the Company for other warrants
of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder.
Subject to the terms of Section 6, upon surrender of this Warrant to the
Company
at its principal office or at the office of its transfer agent, if any, with
the
Assignment Form annexed hereto duly executed and funds sufficient to pay
any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment
and
this Warrant shall be promptly canceled. This Warrant may be divided or combined
with other warrants which carry the same rights upon presentation hereof
at the
principal office of the Company together with a written notice specifying
the
names and denominations in which new Warrants are to be issued and signed
by the
Warrant Holder hereof. The term “Warrant” as used herein includes any Warrants
into which this Warrant may be divided or exchanged. Upon receipt by the
Company
of reasonable evidence of the ownership of and the loss, theft, destruction
or
mutilation of this Warrant and, in the case of loss, theft or destruction,
of
indemnity reasonably satisfactory to the Company, or, in the case of mutilation,
upon surrender and cancellation of the mutilated Warrant, the Company shall
execute and deliver in lieu thereof a new Warrant of like tenor and date
representing an equal number of Warrants.
6.
LIMITATION
ON EXERCISE AND SALES
.
Each
holder of this Warrant acknowledges that this Warrant and the Warrant Shares
have not been registered under the Securities Act, as of the date of issuance
hereof and agrees not to sell, pledge, distribute, offer for sale, transfer
or
otherwise dispose of this Warrant, or any Warrant Shares issued upon its
exercise, in the absence of: (i) an effective registration statement under
the
Securities Act as to this Warrant or such Warrant Shares, as the case may
be,
under any applicable Blue Sky or state securities law then in effect, or
(ii) an
opinion of counsel, satisfactory to the Company, that such registration and
qualification are not required. In addition, this Warrant only may be
transferred to a transferee who certifies in writing to the Warrant Holder
and
to the Company that such transferee is an “accredited investor” within the
meaning of Rule 501(a) promulgated by the Commission under the Securities
Act.
The
Company shall be under no obligation to issue the shares covered by such
exercise unless and until the Warrant Holder shall have executed the form
of
exercise annexed hereto that states that at the time of such exercise that
it is
then an “accredited investor” within the meaning of Rule 501(c) promulgated by
the Commission under the Securities Act, is acquiring such shares for its
own
account, and will not transfer the Warrant Shares unless pursuant to an
effective and current registration statement under the Securities Act or
an
exemption from the registration requirements of the Securities Act and any
other
applicable restrictions, in which event the Warrant Holder shall be bound
by the
provisions of a legend or legends to such effect that shall be endorsed upon
the
certificate(s) representing the Warrant Shares issued pursuant to such exercise.
In such event, the Warrant Shares issued upon exercise hereof shall be imprinted
with a legend in substantially the following form:
“This
security has been acquired for investment and has not been registered under
the
Securities Act of 1933, as amended, or applicable state securities laws.
This
security may not be sold, pledged or otherwise transferred in the absence
of
such registration or pursuant to an exemption therefrom under said Act and
such
laws, supported by an opinion of counsel, reasonably satisfactory to the
Company
and its counsel, that such registration is not required.”
7.
REGISTRATION
RIGHTS OF WARRANT HOLDER
.
The
Company has agreed to file and to use its best efforts to have declared
effective a registration statement with the Commission to register for resale
the Warrant Shares purchasable under this Warrant on a registration statement
(the “Registration Statement”), in accordance with and subject to the terms and
conditions of the registration rights discussed in Section 8 of the Subscription
Agreement signed by the original Holder of this Warrant and accepted by the
Company in connection with the offering to which these Warrants relate. These
registration rights shall inure to the benefit of the transferees of this
Warrant and the Warrant Shares.
8.
ADJUSTMENT
OF PURCHASE PRICE AND NUMBER OF SHARES DELIVERABLE
.
The
Exercise Price and the number of Warrant Shares purchasable pursuant to each
Warrant shall be subject to adjustment from time to time as hereinafter set
forth in this Section 8:
(a)
In
case,
prior to the expiration of this Warrant by exercise or by its terms, the
Company
shall issue any shares of its Common Stock as a stock dividend or subdivide
the
number of outstanding shares of its Common Stock into a greater number of
shares, then in either of such cases, the then applicable Exercise Price
per
Warrant Share purchasable pursuant to this Warrant in effect at the time
of such
action shall be proportionately reduced and the number of Warrant Shares
at that
time purchasable pursuant to this Warrant shall be proportionately increased;
and conversely, in the event the Company shall reduce the number of outstanding
shares of Common Stock by combining such shares into a smaller number of
shares,
then, in such case, the then applicable Exercise Price per Warrant Share
purchasable pursuant to this Warrant in effect at the time of such action
shall
be proportionately increased and the number of Warrant Shares at that time
purchasable pursuant to this Warrant shall be proportionately decreased.
If the
Company shall, at any time during the life of this Warrant, declare a dividend
payable in cash on its Common Stock and shall at substantially the same time
offer to its stockholders a right to purchase new Common Stock from the proceeds
of such dividend or for an amount substantially equal to the dividend, all
Common Stock so issued shall, for the purpose of this Warrant, be deemed
to have
been issued as a stock dividend. Any dividend paid or distributed upon the
Common Stock in stock of any other class of securities convertible into shares
of Common Stock shall be treated as a dividend paid in Common Stock to the
extent that shares of Common Stock are issuable upon conversion
thereof.
(b)
In
case,
prior to the expiration of this Warrant by exercise or by its terms, the
Company
shall be recapitalized by reclassifying its outstanding Common Stock, (other
than a change in par value to no par value), or the corporation or a successor
corporation shall consolidate or merge with or convey all or substantially
all
of its or of any successor corporation’s property and assets to any other
corporation or corporations (any such other corporations being included within
the meaning of the term “successor corporation” hereinbefore used in the event
of any consolidation or merger of any such other corporation with, or the
sale
of all or substantially all of the property of any such other corporation
to,
another corporation or corporations), then, as a condition of such
recapitalization, consolidation, merger or conveyance, lawful and adequate
provision shall be made whereby the holder of this Warrant shall thereafter
have
the right to purchase, upon the basis and on the terms and conditions specified
in this Warrant, in lieu of the Warrant Shares theretofore purchasable upon
the
exercise of this Warrant, such shares of stock, securities or assets as may
be
issued or payable with respect to, or in exchange for the number of Warrant
Shares theretofore purchasable upon the exercise of this Warrant, had such
recapitalization, consolidation, merger, or conveyance not taken place; and
in
any such event, the rights of the Warrant Holder to any adjustment in the
number
of Warrant Shares purchasable upon the exercise of this Warrant, as hereinbefore
provided, shall continue and be preserved in respect of any stock which the
Warrant Holder becomes entitled to purchase.
(c)
In
case
the Company at any time while this Warrant shall remain unexpired and
unexercised shall sell all or substantially all of its property or dissolve,
liquidate, or wind up its affairs, lawful provision shall be made as part
of the
terms of any such sale, dissolution, liquidation or winding up, so that the
holder of this Warrant may thereafter receive upon exercise hereof in lieu
of
each Warrant Share that it would have been entitled to receive, the same
kind
and amount of any securities or assets as may be issuable, distributable
or
payable upon any such sale, dissolution, liquidation or winding up with respect
to each share of Common Stock of the Company, provided, however, that in
any
case of any such sale or of dissolution, liquidation or winding up, the right
to
exercise this Warrant shall terminate on a date fixed by the Company; such
date
so fixed to be not earlier than 5:00 p.m., Colorado time, on the forty-fifth
day
next succeeding the date on which notice of such termination of the right
to
exercise this Warrant has been given by mail to the registered holder of
this
Warrant at its address as it appears on the books of the Company.
(d)
No
adjustment in the per share Exercise Price shall be required unless such
adjustment would require an increase or decrease in the Exercise Price by
at
least $0.01; provided, however, that any adjustments that by reason of this
subsection are not required to be made shall be carried forward and taken
into
account in any subsequent adjustment. All calculations under this Section
8
shall be made to the nearest cent or to the nearest 1/100th of a share, as
the
case may be.
(e)
The
Company will not, by amendment of its Certificate of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek
to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company but will at all times in good faith assist
in
the carrying out of all the provisions of this Section 8 and in the taking
of
all such actions as may be necessary or appropriate in order to protect against
impairment of the rights of the Warrant Holder to adjustments in the Exercise
Price.
(f)
Upon
the
happening of any event requiring an adjustment of the Exercise Price hereunder,
the Company shall give written notice thereof to the Warrant Holder stating
the
adjusted Exercise Price and the adjusted number of Warrant Shares resulting
from
such event and setting forth in reasonable detail the method of calculation
and
the facts upon which such calculation is based.
9.
VOLUNTARY
ADJUSTMENT BY THE COMPANY
.
The
Company may, at its option, at any time during the term of the Warrants,
reduce
the then current Exercise Price to any amount deemed appropriate by the Board
of
Directors of the Company and/or extend the date of the expiration of the
Warrants.
10.
RIGHTS
OF THE HOLDER
.
The
Warrant Holder shall not, by virtue hereof, be entitled to any rights of
a
stockholder in the Company, either at law or equity, and the rights of the
Warrant Holder are limited to those expressed in the Warrant and are not
enforceable against the Company except to the extent set forth herein.
11.
NOTICES
OF RECORD DATE
.
In
case:
(a)
the
Company shall take a record of the holders of its Common Stock (or other
stock
or securities at the time deliverable upon the exercise of this Warrant)
for the
purpose of entitling or enabling them to receive any dividend or other
distribution, or to receive any right to subscribe for or purchase any shares
of
any class or any other securities, or to receive any other right, or
(b)
of
any
capital reorganization of the Company, any reclassification of the capital
stock
of the Company, any consolidation or merger of the Company with or into another
corporation (other than a consolidation or merger in which the Company is
the
surviving entity), or any transfer of all or substantially all of the assets
of
the Company, or
(c)
of
the
voluntary or involuntary dissolution, liquidation or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed
to the
Warrant Holder a notice specifying, as the case may be, (i) the date on which
a
record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right,
or
(ii) the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is
to
take place, and the time, if any is to be fixed, as of which the holders
of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up.
Such
notice shall be mailed at least twenty days prior to the record date or
effective date for the event specified in such notice, provided that the
failure
to mail such notice shall not affect the legality or validity of any such
action.
12.
SUCCESSORS
.
The
rights and obligations of the parties to this Warrant will inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
successors, assigns, pledgees, transferees and purchasers. Without limiting
the
foregoing, the registration rights referred to in Section 7 of this Warrant
shall inure to the benefit of the Warrant Holder and all the Warrant Holder’s
successors, heirs, pledgees, assignees, transferees and purchasers of this
Warrant and the Warrant Shares.
13.
CHANGE
OR WAIVER
.
Any
term of this Warrant may be changed or waived only by an instrument in writing
signed by the party against whom enforcement of the change or waiver is sought.
14.
HEADINGS
.
The
headings in this Warrant are for purposes of reference only and shall not
limit
or otherwise affect the meaning of any provision of this Warrant.
15.
GOVERNING
LAW
.
This
Warrant shall be governed by and construed in accordance with the laws of
the
State of Colorado as such laws are applied to contracts made and to be fully
performed entirely within that state between residents of that state except
to
the extent the laws of the State of Nevada mandatorily apply because the
Company
is incorporated in the State of Nevada.
16.
JURISDICTION
AND VENUE
.
The
Company (i) agrees that any legal suit, action or proceeding arising out
of or
relating to this Warrant shall be instituted exclusively in the District
Court,
City and County of Denver or in the United States District Court for the
District of Colorado, (ii) waives any objection to the venue of any such
suit,
action or proceeding and the right to assert that such forum is not a convenient
forum, and (iii) irrevocably consents to the jurisdiction of the District
Court,
City and County of Denver, and the United States District Court for the District
of Colorado in any such suit, action or proceeding, and the Company further
agrees to accept and acknowledge service or any and all process that may
be
served in any such suit, action or proceeding in the District Court, City
and
County of Denver or in the United States District Court for the District
of
Colorado in person or by certified mail addressed as provided in the following
Section.
17.
MAILING
OF NOTICES, ETC
.
All
notices and other communications under this Warrant (except payment) shall
be in
writing and shall be sufficiently given if delivered to the addressees in
person, by Federal Express or similar overnight courier service, or if mailed,
postage prepaid, by certified mail, return receipt requested, as
follows:
|
|
Registered
Holder:
|
To
his or her last known address as indicated on the Company’s books and
records.
|
|
|
|
|
|
|
The
Company:
|
To
the Company’s Chief Executive Officer at the
address of the Company’s principal office as set forth in the last filing
by the Company with the SEC
|
or
to
such other address as any of them, by notice to the others, may designate
from
time to time. Notice shall be deemed given (a) when personally delivered,
(b)
the scheduled delivery date if sent by Federal Express or other overnight
courier service or (c) the fifth day after sent by certified mail.
IN
WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly
authorized officer as of the _____ day of _______________, 2005.
|
|
|
|
|
|
AEROGROW
INTERNATIONAL, INC.
|
|
|
|
|
|
By:
|
|
|
|
Name:
W. Michael Bissonnette
Title:
CEO and President
|
Notice
of Exercise
To
Be
Executed by the Warrant Holder
In
Order
to Exercise Warrants
The
undersigned Warrant Holder hereby irrevocably elects to exercise ______ Warrants
represented by this Warrant, and to purchase the shares of Common Stock issuable
upon the exercise of such Warrants, and requests that certificates for such
shares of Common Stock shall be issued in the name of
PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(please
print or type name and address)
and
be
delivered to
(please
print or type name and address)
and
if
such number of Warrants shall not be all the Warrants evidenced by this Warrant,
that a new Warrant for the balance of such Warrants be registered in the
name
of, and delivered to, the registered Warrant Holder at the address stated
above.
The
undersigned hereby represents and warrants to the Company that it is an
“Accredited Investor” within the meaning of Rule 501(c) of the Securities Act of
1933, as amended (the “Securities Act”), and is acquiring these securities for
its own account and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or selling
the same. The undersigned further represents that it does not have any contract,
agreement, understanding or arrangement with any person to sell, transfer
or
grant the shares of Common Stock issuable under this Warrant. The undersigned
understands that the shares it will be receiving are “restricted securities”
under Federal securities laws inasmuch as they are being acquired from AEROGROW
INTERNATIONAL, INC., in transactions not including any public offering and
that
under such laws, such shares may only be sold pursuant to an effective and
current registration statement under the Securities Act or an exemption from
the
registration requirements of the Securities Act and any other applicable
restrictions, in which event a legend or legends will be placed upon the
certificate(s) representing the Common Stock issuable under this Warrant
denoting such restrictions. The undersigned understands and acknowledges
that
the Company will rely on the accuracy of these representations and warranties
in
issuing the securities underlying the Warrant.
|
Dated:
_______________________________
|
|
|
|
|
|
(Signature
of Registered Holder)
|
|
|
|
|
ASSIGNMENT
FORM
To
be
executed by the Warrant Holder
In
order
to Assign Warrants
FOR
VALUE
RECEIVED,____________________________________ hereby sell, assigns and transfer
unto
PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(Please
print or type name and address)
______________________
of the Warrants represented by this Warrant, and hereby irrevocably constitutes
and appoints ________________________ Attorney to transfer this Warrant on
the
books of the Company, with full power of substitution in the
premises.
|
Dated:
______________________
|
|
|
|
|
|
(Signature
of Registered Holder)
|
|
|
|
|
|
|
|
|
|
|
|
(Signature
Guaranteed)
|
|
|
|
|
THE
SIGNATURE ON THE EXERCISE FORM OR THE ASSIGNMENT FORM MUST CORRESPOND TO
THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED
BY A
COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK
EXCHANGE, COLORADO STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK
EXCHANGE.
CERTIFICATION
OF STATUS OF TRANSFEREE
TO
BE EXECUTED BY THE TRANSFEREE OF THIS WARRANT
The
undersigned transferee hereby certifies to the registered holder of this
Warrant
and to AEROGROW INTERNATIONAL, INC. that the transferee is an “accredited
investor” within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended.
|
Dated:
_____________________
|
|
|
|
|
|
(Signature
of Transferee)
|
THIS
WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT AND THE WARRANT SHARES ISSUABLE UPON EXERCISE
OF
THIS WARRANT ("WARRANT SHARES") MAY NOT BE SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED, NOR WILL ANY ASSIGNEE, VENDEE, PLEDGEE, TRANSFEREE OR ENDORSEE
HEREOF OR THEREOF BE RECOGNIZED BY THE ISSUER AS HAVING ACQUIRED THE WARRANT
OR
ANY WARRANT SHARES FOR ANY PURPOSE, UNLESS (I) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT WITH RESPECT TO SUCH SECURITIES SHALL THEN BE IN EFFECT
AND
SUCH TRANSFER HAS BEEN QUALIFIED UNDER ALL APPLICABLE STATE SECURITIES LAWS
OR
(II) AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION SHALL BE AVAILABLE
UNDER THE SECURITIES ACT AND SUCH LAWS, SUPPORTED BY AN OPINION OF COUNSEL
THAT
SUCH REGISTRATION IS NOT REQUIRED, WHICH OPINION AND COUNSEL ARE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS COMPANY'S SUBSCRIPTION AGREEMENT WITH THE
WARRANT HOLDER SET FORTH THE COMPANY’S OBLIGATIONS TO REGISTER FOR RESALE THE
WARRANT SHARES.
THIS
WARRANT MAY NOT, IN ANY EVENT, BE TRANSFERRED TO ANY PERSON OR ENTITY THAT
IS
NOT AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501, PROMULGATED UNDER
THE
SECURITIES ACT.
__________Warrants
Void
after 5:00 p.m., Mountain time on February ___, 2011
COMMON
STOCK PURCHASE WARRANT
OF
AERO
GROW
INTERNATIONAL, INC.
AERO
GROW
INTERNATIONAL, INC., a Nevada corporation (the “Company”), hereby certifies
that, for value received
,
______________
(the
“Warrant Holder” and collectively with all other holders of Warrants issued
pursuant to the Subscription Agreement defined below, the “Warrant Holders”) is
the owner of the number of common stock purchase warrants (“Warrants”) specified
above, each of which entitles the holder thereof to purchase, at any time during
the period commencing on the Commencement Date (as defined in
Section
2.1
)
and
ending on the Expiration Date (as defined
Section
2.5
),
one
fully paid and non-assessable share of common stock, par value $0.001 per share,
of the Company (“Common Stock”) at a purchase price equal to the Exercise Price
(as defined in
Section
1.2
)
in
lawful money of the United States of America. These Warrants are part of the
duly authorized issuance of up to 2,400,000 shares of Common Stock and attached
Warrants to purchase shares of Common Stock, issued or to be issued by the
Company as part of a certain private offering (“Offering”) pursuant a private
placement memorandum dated February 6, 2006, as amended or
supplemented.
1.
WARRANT;
EXERCISE PRICE
.
1.1
Each
Warrant shall entitle the Warrant Holder the right to purchase one share of
Common Stock (individually, a “Warrant Share” severally, the “Warrant Shares”).
1.2
The
purchase price payable upon exercise of each Warrant (“Exercise Price”) shall be
$6.25 per share, subject to adjustment as provided in
Section
8
.
2.
EXERCISE
OF WARRANTS; EXPIRATION DATE
.
2.1
Exercise
of Warrant
(a)
Exercise
for Cash
.
The
Warrants are exercisable during the period commencing on February ___, 2006
(“Commencement Date”) and ending on the Expiration Date (as defined below in
Section
2.5
),
in
whole, or from time to time, in part, at the option of the Warrant Holder,
upon
surrender of this Warrant to the Company, or such other person as the Company
may designate, together with a duly completed and executed form of exercise
attached hereto (indicating exercise by payment of the Exercise Price) and
payment of an amount equal to the then applicable Exercise Price multiplied
by
the number of Warrant Shares then being purchased upon such
exercise.
The
payment of the Exercise Price shall be in cash or by certified check or official
bank check, payable to the order of the Company.
(b)
Cashless
Exercise
.
In lieu
of exercising Warrants pursuant to Section 2.1(a), Warrant may be exercised
during any period commencing the first anniversary of the closing of the
Offering and ending on the Expiration Date during which a valid Company
prospectus covering the public re-sale of the Warrant Shares is not available
to
the Warrant Holder, in whole, or from time to time, in part, at the option
of
the Warrant Holder, upon surrender of the Warrants to the Company, or such
other
person as the Company may designate, together with a duly completed and executed
form of exercise attached hereto (indicating exercise by cashless exercise),
specifying the number of Warrants to be exercised. The number of Warrant Shares
to be issued to the Warrant Holder upon such cashless exercise shall be computed
using the following formula:
|
X
=
(P)(Y)(A-B)/A
|
|
Where
|
X
=
|
the
number of shares of Warrant Shares to be issued to the Warrant Holder
for
the Warrants being converted.
|
|
|
|
P
=
|
the
number of Warrants being converted expressed as a decimal
fraction.
|
|
|
|
YY
=
|
the
total number of Warrant Shares issuable upon exercise of the Warrants
in
full.
|
|
|
|
A
=
|
the
fair market value of one Warrant Share which shall mean the "last
sale
price" as determined in accordance with Section 2.4.
|
|
|
|
BB
=
|
the
Exercise Price on the date of
conversion.
|
2.2
Each
exercise of a Warrant shall be deemed to have been effected immediately prior
to
the close of business on the day on which such Warrant shall have been
surrendered to the Company as provided in
Section
2.1
.
At such
time, the person or persons in whose name or names any certificates for Warrant
Shares shall be issuable upon such exercise as provided in
Section
2.3
below
shall be deemed to have become the holder or holders of record of the Warrant
Shares represented by such certificates.
2.3
As
soon
as practicable after the exercise of this Warrant, in full or in part, the
Company, at its expense, will use its best efforts to cause to be issued in
the
name of, and delivered to, the Warrant Holder, or, subject to the terms and
conditions hereof, to such other individual or entity as such Warrant Holder
may
direct:
(a)
a
certificate or certificates for the number of full Warrant Shares to which
such
Warrant Holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which such Warrant Holder would otherwise be entitled,
cash
in an amount determined pursuant to
Section
2.4
hereof,
and
(b)
in
case
such exercise is in part only, a new Warrant or Warrants (dated the date hereof)
of like tenor, stating on the face or faces thereof the number of shares
currently stated on the face of this Warrant minus the number of such shares
purchased by the Warrant Holder upon such exercise as provided in
Section
2.1
(prior
to any adjustments made thereto pursuant to the provisions of this
Warrant).
(c)
The
Company shall not be required upon the exercise of this Warrant to issue any
fractional shares, but shall round up to the next whole share.
2.4
“Last
sale price” means (i) if the Common Stock is listed on a national securities
exchange or quoted on the Nasdaq National Market, Nasdaq Capital Markets or
NASD
OTC Bulletin Board (or successor such as the Bulletin Board Exchange), the
closing bid price of the Common Stock in the principal trading market for the
Common Stock as reported by the exchange, Nasdaq or the NASD, as the case may
be, (ii) if the Common Stock is not listed on a national securities exchange
or
quoted on the Nasdaq National Market, Nasdaq SmallCap Market or the NASD OTC
Bulletin Board (or successor such as the Bulletin Board Exchange), but is traded
in the residual over-the-counter market, the closing bid price for the Common
Stock on the last trading day preceding the date in question for which such
quotations are reported by the Pink Sheets, LLC or similar publisher of such
quotations, and (iii) if the fair market value of the Common Stock cannot be
determined pursuant to clause (i) or (ii) above, such price as the Board of
Directors of the Company shall determine, in good faith.
2.5
The
term
“Expiration Date” shall mean 5:00 p.m., Mountain time on February ___, 2011, or
if such date shall in the State of Colorado be a holiday or a day on which
banks
are authorized to close, then 5:00 p.m., Mountain time the next following day
which in the State of Colorado is not a holiday or a day on which banks are
authorized to close.
3.
REGISTRATION
AND TRANSFER ON COMPANY BOOKS
.
3.1
The
Company (or an agent of the Company) will maintain a register containing the
names and addresses of the Warrant Holders. Any Warrant Holder may change its,
his or her address as shown on the warrant register by written notice to the
Company requesting such change.
3.2
The
Company shall register upon its books any transfer of a Warrant upon surrender
of same as provided in
Section
5
.
4.
RESERVATION
OF SHARES
.
The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of this Warrant, such Warrant Shares and other stock,
securities and property, as from time to time shall be issuable upon the
exercise of this Warrant. The Company covenants that all shares of Warrant
Shares so issuable when issued will be duly and validly issued and fully paid
and non-assessable.
5.
EXCHANGE,
LOSS OR MUTILATION OF WARRANTS
.
Warrants are exchangeable, without expense, at the option of the Warrant Holder,
upon presentation and surrender hereof to the Company for other warrants of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder on
the
same terms and conditions as provided herein. Subject to the provisions of
Section
6
,
if
applicable, this Warrant may be divided or combined with other warrants which
carry the same rights upon presentation hereof at the Company’s office together
with a written notice specifying the names and denominations in which new
Warrants are to be issued and signed by the Warrant Holder hereof. The term
“Warrant” as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt by the Company of reasonable evidence of
the
ownership and the loss, theft, destruction or mutilation of this Warrant and,
in
the case of loss, theft or destruction, receipt of indemnity reasonably
satisfactory to the Company, or, in the case of mutilation, upon surrender
and
cancellation of the mutilated Warrant, the Company shall execute and deliver
in
lieu thereof a new Warrant of like tenor and date representing an equal number
of Warrants.
6.
LIMITATION
ON EXERCISE AND SALES
.
6.1
Each
Warrant Holder acknowledges that the Warrants and the Warrant Shares have not
been registered under the Securities Act and the rules and regulations
thereunder, or any successor legislation, and agrees not to sell, pledge,
distribute, offer for sale, transfer or otherwise dispose of any Warrant, or
any
Warrant Shares issued upon its exercise, in
except
in compliance with the requirements of
Section
6.2
.
6.2
The
Warrants and the rights granted to the Warrant Holder are transferable only
to
accredited investors in whole or in part, upon surrender of this Warrant,
together with a properly executed assignment in the form attached hereto, at
the
office or agent of the Company;
provided,
however,
that
if
at the time of the surrender of this Warrant in connection with any exercise,
transfer or exchange of this Warrant, this Warrant (or, in the case of any
exercise, the Warrant Sharers issuable hereunder), shall not be registered
for
resale under the Securities Act or under applicable state securities or blue
sky
laws, then the Company may require, as a condition of allowing such exercise,
transfer or exchange (i) a written opinion of counsel, which opinion and counsel
are acceptable to the Company, to the effect that such exercise, transfer or
exchange may be made without registration under the Securities Act or under
applicable state securities or blue sky laws, (ii) that any transferee of the
Warrant execute and deliver to the Company a document containing investment
representations and warranties substantially similar to those set forth in
the
Subscription Agreement pursuant to which the initial Warrant Holder acquired
this Warrant, and (iii) prior to exercise of the Warrant, the Warrant Holder
shall have executed the form of exercise annexed hereto.
6.3
Certificates
delivered to the Warrant Holder upon exercise hereof shall be imprinted with
a
legend in substantially the following form if such Warrant Shares are not
registered at the time of exercise:
“This
security has been acquired for investment and has not been registered under
the
Securities Act of 1933, as amended (the “Act”), or applicable state securities
or “blue sky” laws. This security may not be sold, pledged, assigned or
otherwise transferred nor will any assignee, pledgee, vendee, transferee,
endorsee thereof be recognized by the issuer as having acquired such securities
for any purpose unless (i) a registration statement under the Act with respect
to such security shall then be in effect and such transfer has been qualified
under all applicable state securities or “blue sky” laws or (ii) an exemption
therefrom shall be available under the Act and such laws, supported by an
opinion of counsel that such registration is not required,
which
opinion and counsel are reasonably satisfactory to the Company and its
counsel.”
7.
REGISTRATION
RIGHTS OF WARRANT HOLDER
.
The
initial Warrant Holder (and certain permitted assignees thereof) is entitled
to
the benefit of registration rights in respect of Warrant Shares in accordance
with and subject to the terms and conditions of the Subscription Agreement
executed and delivered by the initial Warrant Holder and the Company.
8.
ADJUSTMENT
OF PURCHASE PRICE AND NUMBER OF SHARES DELIVERABLE
.
The
Exercise Price and the number of Warrant Shares purchasable pursuant to each
Warrant shall be subject to adjustment from time to time as hereinafter set
forth in this
Section
8
:
(a)
If
the
Company shall (i) issue any shares of its Common Stock as a stock dividend
or
(ii) subdivide the number of outstanding shares of its Common Stock into a
greater number of shares, the Exercise Price shall be proportionately reduced
and the number of Warrant Shares at that time purchasable pursuant to this
Warrant shall be proportionately increased. If the Company shall reduce the
number of outstanding shares of Common Stock by combining such shares into
a
smaller number of shares, the Exercise Price per Warrant Share shall be
proportionately increased and the number of Warrant Shares at that time
purchasable pursuant to this Warrant shall be proportionately decreased. If
the
Company shall, at any time during the life of this Warrant, declare a dividend
payable in cash on its Common Stock and shall at substantially the same time
offer to its stockholders a right to purchase new Common Stock from the proceeds
of such dividend or for an amount substantially equal to the dividend, for
purposes of this Warrant, all Common Stock so issued shall be deemed to have
been issued as a stock dividend. Any dividend paid or distributed upon the
Common Stock in stock of any other class of securities convertible into shares
of Common Stock shall be treated as a dividend paid in Common Stock to the
extent that shares of Common Stock are issuable upon conversion
thereof.
(b)
If
the
Company shall be recapitalized by reclassifying its outstanding Common Stock,
(other than a change in par value or a subdivision or combination as provided
in
Section
8(a)
),
or the
Company or a successor corporation shall consolidate or merge with or convey
all
or substantially all of its or of any successor corporation’s property and
assets to any other corporation or corporations (any such other corporations
being included within the meaning of the term “successor corporation”
hereinbefore used), then, as a condition of such recapitalization,
consolidation, merger or conveyance, lawful and adequate provision shall be
made
whereby the Warrant Holder shall thereafter have the right to receive upon
the
exercise hereof the kind and amount of shares of stock or other securities
or
property which such Holder would have been entitled to receive if, immediately
prior to any such reorganization or reclassification, such Holder had held
the
number of shares of Common Stock which were then purchasable upon the exercise
of this Warrant. In any such case, appropriate adjustment shall be made in
the
application of the provisions set forth herein with respect to the rights and
interest thereafter of the Warrant Holder such that the provisions set forth
in
this
Section
8
(including provisions with respect to adjustment of the Exercise Price and
number of shares purchasable upon the exercise of this Warrant) shall thereafter
be applicable, as nearly as may be in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this
Warrant.
(c)
If
the
Company shall sell all or substantially all of its property or dissolve,
liquidate, or wind up its affairs, lawful provision shall be made as part of
the
terms of any such sale, dissolution, liquidation or winding up, so that the
holder of this Warrant may thereafter receive upon exercise hereof in lieu
of
each Warrant Share that it would have been entitled to receive, the same kind
and amount of any securities or assets as may be issuable, distributable or
payable upon any such sale, dissolution, liquidation or winding up with respect
to each share of Common Stock of the Company,
provided,
however
,
that in
any case of any such sale or of dissolution, liquidation or winding up, the
right to exercise this Warrant shall terminate on a date fixed by the Company;
such date so fixed to be not earlier than 5:00 p.m., Mountain time, on the
forty-fifth day next succeeding the date on which notice of such termination
of
the right to exercise this Warrant has been given by mail to the registered
holder of this Warrant at its address as it appears on the books of the
Company.
(d)
No
adjustment in the per share Exercise Price shall be required unless such
adjustment would require an increase or decrease in the Exercise Price by at
least $0.01;
provided,
however
,
that
any adjustments that by reason of this subsection are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this
Section
8
shall be
made to the nearest cent or to the nearest 1/100
th
of a
share, as the case may be.
(e)
The
Company will not, by amendment of its Certificate of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company but will at all times in good faith assist
in
the carrying out of all the provisions of this
Section
8
and in
the taking of all such actions as may be necessary or appropriate in order
to
protect against impairment of the rights of the Warrant Holder to adjustments
in
the Exercise Price.
(f)
Upon
the
happening of any event requiring an adjustment of the Exercise Price hereunder,
the Company shall give written notice thereof to the Warrant Holder stating
the
adjusted Exercise Price and the adjusted number of Warrant Shares resulting
from
such event and setting forth in reasonable detail the method of calculation
and
the facts upon which such calculation is based.
9.
VOLUNTARY
ADJUSTMENT BY THE COMPANY
.
The
Company may, at its option, at any time during the term of the Warrants, reduce
the then current Exercise Price to any amount deemed appropriate by the Board
of
Directors of the Company and/or extend the date of the expiration of the
Warrants.
10.
WARRANT
SOLICIATION FEE
.
The
Company has engaged Keating Securities, LLC (“Keating”) as its agent for the
solicitation of the exercise of the Warrants. Keating will be paid the warrant
solicitation fee only if it has provided bona fide services in connection with
the exercise of the Warrants. In addition to soliciting, either orally or in
writing, the exercise of Warrants by a Warrant Holder, such services also may
include disseminating information, either orally or in writing, to Warrant
Holders about the Company or the market for the Company’s securities, or
assisting in the processing of the exercise of Warrants. In each instance in
which a Warrant is exercised, the Company, and one has been appointed, the
warrant agent, shall promptly give written notice of such exercise to the
Keating (“Exercise Notice”). If, upon the exercise of any Warrant, (i) the
market price of the Company’s Common Stock is greater than the Exercise Price,
(ii) disclosure of compensation arrangements was made both at the time of
the original offering and at the time of exercise (by delivery of the Prospectus
or as otherwise required by applicable law, rule or regulation), (iii) the
exercise of the Warrant was solicited by Keating, (iv) the Warrant was not
held in a discretionary account, and (v) the solicitation of the exercise
of the Warrant was not in violation of Regulation M (as such rule or any
successor rule may be in effect as of such time of exercise) promulgated under
the Securities Exchange Act of 1934, as amended, then simultaneously with the
issuance of the common stock underlying the Warrant(s), the Company (or if
one
is appointed, the warrant agent on behalf of the Company) shall pay from the
proceeds received upon exercise of the Warrant(s), a fee of 5% of the Exercise
Price to Keating in accordance with its actual solicitation of a Warrant holder,
provided that Keating delivers to either the Company or, if appointed, the
warrant agent within five (5) business days from the date on which Keating
received the Exercise Notice, a certificate that the conditions set forth in
this section have been satisfied. Keating and the Company may, at any time
during business hours, examine the records of the warrant agent, if any,
including its ledger of original Warrant certificates returned to the warrant
agent upon exercise of Warrants. Notwithstanding the foregoing, if the Warrant
is exercised on a cashless basis, Keating will not be entitled to any
solicitation fee. The provisions of this section may not be modified,
amended or deleted without the prior written consent of Keating.
11.
RIGHTS
OF THE HOLDER
.
The
Warrant Holder shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or equity, and the rights of the
Warrant Holder are limited to those expressed in the Warrant and are not
enforceable against the Company except to the extent set forth herein.
12.
NOTICES
OF RECORD DATE
.
In
case: (a) the Company shall take a record of the holders of its Common Stock
(or
other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase
any
shares of any class or any other securities, or to receive any other right,
or
(b) of any capital reorganization of the Company, any reclassification of the
capital stock of the Company, any consolidation or merger of the Company with
or
into another corporation (other than a consolidation or merger in which the
Company is the surviving entity), or any transfer of all or substantially all
of
the assets of the Company, or (c) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company, then, and in each such case, the
Company will mail or cause to be mailed to the Warrant Holder a notice
specifying, as the case may be: (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the effective
date on which such reorganization, reclassification, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place, and the
time,
if any is to be fixed, as of which the holders of record of Common Stock (or
such other stock or securities at the time deliverable upon the exercise of
this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
twenty days prior to the record date or effective date for the event specified
in such notice, provided that the failure to mail such notice shall not affect
the legality or validity of any such action.
13.
SUCCESSORS
.
The
rights and obligations of the parties to this Warrant will inure to the benefit
of and be binding upon the parties hereto and their respective permitted heirs,
successors, assigns, pledgees, transferees and purchasers.
14.
CHANGE
OR WAIVER
.
Any
term of this Warrant may be changed or waived only by an instrument in writing
signed by the party against whom enforcement of the change or waiver is sought.
15.
HEADINGS
.
The
headings in this Warrant are for purposes of reference only and shall not limit
or otherwise affect the meaning of any provision of this Warrant.
16.
GOVERNING
LAW
.
This
Warrant shall be governed by and construed in accordance with the laws of the
State of Colorado as such laws are applied to contracts made and to be fully
performed entirely within that state between residents of that
state.
17.
JURISDICTION
AND VENUE
.
The
Company (i) agrees that any legal suit, action or proceeding arising out of
or
relating to this Warrant shall be instituted exclusively in the federal courts
located in Denver, Colorado, U.S.A., (ii) waives any objection to the venue
of
any such suit, action or proceeding and the right to assert that such forum
is
not a convenient forum, and (iii) irrevocably consents to the jurisdiction
of
the federal courts located in Denver, Colorado, U.S.A. in any such suit, action
or proceeding, and the Company further agrees to accept and acknowledge service
or any and all process that may be served in any such suit, action or proceeding
in the federal courts located in Denver, Colorado, U.S.A. in person or by
certified mail addressed as provided in the following Section.
18.
AMENDMENT
AND WAIVER
.
Any
amendment or waiver of any of the terms or conditions of the Warrants by the
Company must be in writing and must be duly executed by or on its behalf. Any
of
the terms or conditions of the Warrants may be amended or waived by the Warrant
Holders only upon the written consent of Warrant Holders representing 51% of
the
Warrants then outstanding. Any such amendment or waiver shall be binding on
all
Warrant Holders whether they consented or not or whether their consent was
solicited or not. The failure of a party to exercise any of its rights hereunder
or to insist upon strict adherence to any term or condition hereof on any one
occasion shall not be construed as a waiver or deprive that party of the right
thereafter to insist upon strict adherence to the terms and conditions of this
Warrant at a later date. Further, no waiver of any of the terms and conditions
of this Warrant shall be deemed to or shall constitute a waiver of any other
term of condition hereof (whether or not similar).
19.
MAILING
OF NOTICES, ETC
.
All
notices and other communications under this Warrant (except payment) shall
be in
writing and shall be sufficiently given if delivered to the addressees in
person, by Federal Express or similar overnight courier service, or if mailed,
postage prepaid, by certified mail, return receipt requested, as follows:
|
|
Registered
Holder:
|
To
his or her last known address as indicated on the Company’s books and
records.
|
|
|
The
Company:
|
To
the Company’s Chief Executive Officer at the address of the Company’s
principal office as set forth in the last filing by the Company with
the
SEC
|
or
to
such other address as any of them, by notice to the others, may designate from
time to time. Notice shall be deemed given (a) when personally delivered, (b)
the scheduled delivery date if sent by Federal Express or other overnight
courier service or (c) the fifth day after sent by certified mail.
IN
WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer as of the _____ day of February, 2006.
AERO
GROW
INTERNATIONAL, INC.
By:
____________________
Michael Bissonnette, CEO
Notice
of Exercise
To
Be
Executed by the Warrant Holder
In
Order
to Exercise Warrants
The
undersigned Warrant Holder hereby irrevocably elects to exercise ______ Warrants
represented by this Warrant by:
(check
one)
¨
payment
of the Exercise Price in cash pursuant to Section 2.1(a) of the
Warrant
¨
the
cashless exercise option pursuant to Section 2.1(b) of the Warrant
for
the
shares of Common Stock issuable upon the exercise of such Warrants, and requests
that certificates for such shares of Common Stock shall be issued in the name
of
PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(please
print or type name and address)
and
be
delivered to
(please
print or type name and address)
and
if
such number of Warrants shall not be all the Warrants evidenced by this Warrant,
that a new Warrant for the balance of such Warrants be registered in the name
of, and delivered to, the registered Warrant Holder at the address stated
above.
The
undersigned hereby represents and warrants to the Company that it is an
“Accredited Investor” within the meaning of Rule 501(c) of the Securities Act of
1933, as amended (the “Securities Act”), and is acquiring these securities for
its own account and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or selling
the same provided, however, the undersigned may sell such securities in
accordance with federal and state securities laws. The undersigned further
represents that it does not have any contract, agreement, understanding or
arrangement with any person to sell, transfer or grant the shares of Common
Stock issuable under this Warrant. The undersigned understands that the shares
it will be receiving are “restricted securities” under Federal securities laws
inasmuch as they are being acquired from AERO GROW INTERNATIONAL, INC., in
transactions not including any public offering and that under such laws, such
shares may only be sold pursuant to an effective and current registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act and any other applicable restrictions
including the requirements of state securities and “blue sky” laws, in which
event a legend or legends will be placed upon the certificate(s) representing
the Common Stock issuable under this Warrant denoting such restrictions. The
undersigned understands and acknowledges that the Company will rely on the
accuracy of these representations and warranties in issuing the securities
underlying the Warrant.
Dated:
_______________
_______________________________
(Signature
of Registered Holder)
ASSIGNMENT
FORM
To
be
executed by the Warrant Holder
In
order
to Assign Warrants
FOR
VALUE
RECEIVED,____________________________________ hereby sell, assigns and transfer
unto
PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(Please
print or type name and address)
______________________
of the Warrants represented by this Warrant, and hereby irrevocably constitutes
and appoints ________________________ Attorney to transfer this Warrant on
the
books of the Company, with full power of substitution in the
premises.
Dated:_____________________
___________________________________
(Signature
of Registered Holder)
CERTIFICATION
OF STATUS OF TRANSFEREE
TO
BE EXECUTED BY THE TRANSFEREE OF THIS WARRANT
The
undersigned transferee hereby certifies to the registered holder of this Warrant
and to AERO GROW INTERNATIONAL, INC. that the transferee is an “accredited
investor” within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended.
Dated:_____________________
____________________________________
(Signature of Transferee)
EXHIBIT
4.4
THIS
NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR APPLICABLE STATE
SECURITIES LAWS. THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF
THIS
NOTE (“CONVERSION SECURITIES”) MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR PURSUANT TO AN EXEMPTION THEREFROM
UNDER
THE SECURITIES ACT AND SUCH STATE LAWS, SUPPORTED BY AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED. THIS NOTE AND THE COMPANY'S SUBSCRIPTION AGREEMENT WITH
THE
HOLDER SET FORTH THE COMPANY’S OBLIGATIONS TO REGISTER FOR RESALE THE CONVERSION
SECURITIES. A COPY OF SUCH SUBSCRIPTION AGREEMENT IS AVAILABLE FOR INSPECTION
AT
THE COMPANY’S OFFICE.
THIS
NOTE MAY NOT, IN ANY EVENT, BE TRANSFERRED TO ANY PERSON OR ENTITY THAT IS
NOT
AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501, PROMULGATED UNDER
THE
ACT.
AEROGROW
INTERNATIONAL, INC.
10%
Unsecured Convertible Note
|
|
|
|
No.
_____________
|
Principal
Amount: $ _____________
|
|
|
|
|
|
Issue
Date: _____________, 2005
|
|
|
|
AEROGROW
INTERNATIONAL, INC
.,
a
Nevada corporation (“Company”), promises to pay to
_________________________________________________________ or registered assigns,
the principal amount of ______________________________ ($_______________)
on
June 30, 2006. This Note is one of the duly authorized issue of Notes of
the
Company, limited in aggregate principal amount to $3,000,000, issued or to
be
issued by the Company pursuant to a certain private placement memorandum
dated
June 6, 2005.
1.
Interest
.
The
Company promises to pay interest on the principal amount of this Note at
the
interest rate of 10% per annum. The Company will pay interest on September
30,
December 31, March 31 and June 30 of each year and at final maturity, beginning
September 30, 2005. Interest on this Note will accrue from the most recent
date
to which interest has been paid or, if no interest has been paid, from the
Issue
Date above. Interest will be computed on the basis of a 360-day year of twelve
30-day months.
2.
Method
of Payment
.
The
Company will pay interest on the Notes (except defaulted interest) to the
persons who are registered holders of Notes at the close of business on the
15
th
day of
the month next preceding the interest payment date. If the Company defaults
in a
payment of interest on the Notes, it shall pay the defaulted interest to
the
persons who are holders on a subsequent special record date selected by the
Company. Holders must surrender Notes to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public
and
private debts. However, the Company may pay principal and interest by its
check
payable in such money. It may mail an interest check to a holder’s registered
address.
3.
Paying
Agent, Registrar, Conversion Agent
.
Initially, the Company, 900 28
th
Street,
Suite 201, Boulder, Colorado 80303, will act as Paying Agent, Registrar and
Conversion Agent. The Company may change any Paying Agent, Registrar, or
Conversion Agent by notice to the Noteholders.
All
notices required under this Note shall be deemed to have been given or made
for
all purposes (i) upon personal delivery, (ii) upon confirmation
receipt that the communication was successfully sent to the applicable number
if
sent by facsimile; (iii) one day after being sent, when sent by
professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail. Notices to the Company shall be
sent
to the principal office of the Company (or at such other place as the Company
shall notify the holder hereof in writing). Notices to the holder shall be
sent
to the address of the holder on the books of the Company (or at such other
place
as the holder shall notify the Company hereof in writing).
4.
Unsecured
Obligations
.
The
Notes are unsecured obligations of the Company.
5.
Conversion;
Registration
.
The
principal amount of this Note will be convertible, at the holder’s election,
into shares of the Company’s common stock, par value $0.001 per share (“Common
Stock”) at a conversion price (“Conversion Price”) equal to the lesser of: (i)
$4.00 per share, or (ii) if a registered public offering of securities by
the
Company is declared effective under the Securities Act prior to the payment
or
conversion of the Notes (“Registered Offering”), 80% of the per share offering
price of Common Stock in the first such Registered Offering (“Public Offering
Price”).
During
the fifteen (15) day period following the date upon which the Registered
Offering is declared effective and the Company has received the funds from
such
Registered Offering, each holder of Notes may, on one occasion only, demand
full
and complete payment in cash of the outstanding principal amount of all Notes
held by such holder, together with all accrued interest thereon. Upon conversion
of this Note, the holder shall receive additional five-year warrants to purchase
2,000 shares of Common Stock for each $10,000 of principal amount so converted
(“Conversion Warrants”). The Conversion Warrants may be exercised 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.
The
Company has agreed to file and to use its best efforts to have declared
effective a registration statement with the U.S. Securities and Exchange
Commission (“Commission”) to register for resale the
Common
Stock into which the Note may be converted and the Common Stock underlying
the
Conversion Warrants (“Conversion Securities”),
in
accordance with and subject to the terms and conditions of the registration
rights discussed in Section 8 of the Subscription Agreement signed by the
original holder of this Note and accepted by the Company in connection with
the
offering to which this Note relates. These registration rights shall inure
to
the benefit of the transferees of this Notes and the Conversion Shares.
The
principal amount of this Note may be converted, in whole or in part (as limited
herein), by the holder at any time until the Note is paid in full by the
Company. The Company may not redeem the Note and will have no right to pre-pay
the Note without the prior written consent of the holder.
To
convert a Note a holder must: (1) complete and sign the conversion notice
appearing on the Note, (2) surrender the Note to the Conversion Agent, (3)
furnish appropriate endorsements or transfer documents required by the Registrar
or Conversion Agent, and (4) pay any transfer or similar tax if required.
A
holder may convert a portion of a Note if the portion is $1,000 or an integral
multiple thereof.
The
conversion price may be adjusted by the Company, with notice to the Noteholders,
for stock splits, stock dividends, reorganizations and reclassifications.
No
adjustment will be made for accrued interest on a converted Note or for
dividends or distributions on common stock issued upon conversion of a
Note.
The
Company shall reserve out of its authorized but unissued common stock or
its
common stock held in treasury enough shares of common stock to permit the
conversion of the Notes. All shares of common stock which may be issued upon
conversion of the Notes shall be fully paid and non-assessable.
The
Notes
will not entitle the Noteholders to vote on any matter voted on at a meeting
of
the Company’s shareholders.
6.
Denominations,
Transfer
.
The
Notes are in registered form without coupons in denominations of $10,000
or
integral multiples thereof. A holder may transfer or exchange the Notes at
the
principal office of the Company. The Notes cannot be transferred by a holder
unless the Notes are registered under the Securities Act or an exemption
from
registration is available. In order for a holder to transfer the Notes pursuant
to an exemption, the request for transfer must be accompanied by evidence
satisfactory to the Company that an exemption is available for the transfer,
which may include an opinion of counsel or a no-action letter from the
Commission. In addition, the Registrar may require a holder, among other
things,
to furnish appropriate endorsements and transfer documents and to pay any
required taxes and fees.
7.
Persons
Deemed Owners
.
The
registered holder of a Note may be treated as its owner for all
purposes.
8.
Unclaimed
Money
.
If
money for the payment of principal or interest remains unclaimed for two
years,
the Paying Agent, if other than the Company, will pay the money back to the
Company at its request. After that, holders entitled to the money must look
to
the Company for payment unless an abandoned property law designates another
person.
9.
Amendment,
Supplement, Waiver
.
The
Notes may be amended or supplemented, and any past default or compliance
with
any provision may be waived, with the consent of the holders of at least
a
majority in principal amount of the Notes. Without the consent of any holder,
the Company may amend or supplement the Notes to cure any ambiguity, defect
or
inconsistency or to make any change that does not materially adversely affect
the rights of any holder.
Without
the consent of each holder affected, an amendment, supplement or waiver may
not:
(1) reduce the amount of Notes whose holders must consent to an amendment,
supplement or waiver, (2) reduce the rate of or extend the time for payment
of
interest on any Note, (3) reduce the principal of or extend the fixed maturity
of any Note, (4) waive a default in the payment of the principal of or interest
on any Note, (5) make any Note payable in money other than that stated in
the
Note, or (6) make any change that materially adversely affects the right
to
convert any Note.
10.
Defaults
and Remedies
.
An
“Event of Default” occurs if:
(1)
the
Company defaults in the payment of interest on any Note when the same becomes
due and payable and the default continues for a period of 15 days;
(2)
the
Company defaults in the payment of the principal of any Note when the same
becomes due and payable at maturity, upon redemption or otherwise;
(3)
the
Company fails to comply with any of its other agreements in the Note and
the
default continues for the period and after the notice specified below;
(4)
the
Company pursuant to or within the meaning of any Bankruptcy Law (a) commences
a
voluntary case, (b) consents to the entry of an order for relief against
it in
an involuntary case, (c) consents to the appointment of a Custodian of it
or for
all or substantially all of its property, or (d) makes a general assignment
for
the benefit of its creditors; or
(5)
a
court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that (a) is for relief against the Company in an involuntary case, (b)
appoints a Custodian of the Company or for all or substantially all of its
property, or (c) orders the liquidation of the Company, and the order or
decree
remains unstayed and in effect for 90 days.
The
term
“Bankruptcy Law” means title 11, U.S. Code or any similar Federal or State law
for the relief of debtors. The term “Custodian” means any receiver, trustee,
assignee, liquidator or similar official under any Bankruptcy Law.
A
default
under clause (3) is not an Event of Default until the holders of at least
25% in
principal amount of the Notes notify the Company of the default and the Company
does not cure the default within 45 days after receipt of the notice. The
notice
must specify the default, demand that it be remedied and state that the notice
is a “Notice of Default.”
If
an
Event of Default occurs and is continuing, the holders of at least 25% in
principal amount of the Notes by notice to the Company may declare the principal
of and accrued interest on all the Notes to be due and payable immediately.
Upon
a declaration such principal and interest shall be due and payable immediately.
The holders of a majority in principal amount of the Notes by notice to the
Company may rescind an acceleration and its consequences if all existing
Events
of Default have been cured or waived and if the rescission would not conflict
with any judgment or decree.
If
an
Event of Default occurs and is continuing, the Noteholders may pursue any
available remedy by proceeding at law or in equity to collect the payment
of
principal or interest on the Notes or to enforce the performance of any
provision of the Notes.
A
delay
or omission by any holder in exercising any right or remedy accruing upon
an
Event of Default shall not impair the right or remedy or constitute a waiver
of
or acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative.
The
holders of a majority in principal amount of the Notes by notice to the Company
may waive an existing Default and its consequences. When a Default is waived,
it
is cured and stops continuing.
11.
Financial
Statements
.
As long
as the Notes are outstanding, the Company will furnish to holders, upon request:
(i) quarterly unaudited financial statements (including balance sheets, income
statements and cash flow statements) within 45 days following the end of
each
fiscal quarter of the Company, except for the last fiscal quarter of the
Company
in any fiscal year of the Company, and (ii) annual financial statements
(including balance sheets, income statements, changes in financial position
and
related notes thereto) which have been audited by an independent auditor
no
later than 90 days after the end of each fiscal year of the Company,
unless
such financial statements are included in periodic reports under the Exchange
Act, which are timely filed by the Company
.
The
Company currently is not required to be a reporting company under the federal
securities laws.
12.
Legal
Holidays
.
A
“Legal Holiday” is a Saturday, a Sunday, a legal holiday or a day on which
banking institutions in the U.S. are not required to be open. If a payment
date
is a Legal Holiday at a place of payment, payment may be made at that place
on
the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
13.
No
Recourse Against Others
.
A
director, officer, employee or shareholder, as such, of the Company shall
not
have any liability for any obligations of the Company under the Notes or
for any
claim based on, in respect of or by reason of, such obligations or their
creation. Each holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issue
of
the Notes.
14.
Abbreviations
.
Customary abbreviations may be used in the name of a holder or an assignee,
such
as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT
TEN
(=joint tenants with right of survivorship and not as tenants in common),
CUST
(=custodian), and U/G/M/A (=Uniform Gift to Minors Act).
15.
Consent
to Jurisdiction; Forum Selection; Governing Law; Waiver of Jury
Trial
.
(i)
THE
COMPANY AND THE HOLDER
AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS NOTE
SHALL
BE TRIED AND LITIGATED EXCLUSIVELY IN THE FEDERAL COURTS LOCATED IN DENVER,
COLORADO, U.S.A. THE AFOREMENTIONED CHOICE OF VENUE IS INTENDED BY THE COMPANY
AND THE HOLDER TO BE MANDATORY AND NOT PERMISSIVE IN NATURE, THEREBY PRECLUDING
THE POSSIBILITY OF LITIGATION BETWEEN THE COMPANY AND THE HOLDER WITH RESPECT
TO
OR ARISING OUT OF THIS NOTE IN ANY JURISDICTION OTHER THAN THOSE SPECIFIED
IN
THIS
SECTION
15
.
THE
COMPANY AND THE HOLDER EACH WAIVE ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON-CONVENIENS OR SIMILAR DOCTRINE OR TO OBJECT TO VENUE WITH RESPECT
TO ANY PROCEEDING BROUGHT IN ACCORDANCE WITH THIS
SECTION
15
,
AND
STIPULATES THAT THE FEDERAL COURTS LOCATED IN DENVER, COLORADO, U.S.A. SHALL
HAVE IN PERSONAM JURISDICTION AND VENUE OVER EACH OF THEM FOR THE PURPOSE
OF
LITIGATING ANY DISPUTE, CONTROVERSY OR PROCEEDING ARISING OUT OF OR RELATED
TO
THIS NOTE. THE COMPANY AND THE HOLDER EACH AUTHORIZE AND ACCEPT SERVICE OF
PROCESS SUFFICIENT FOR PERSONAL JURISDICTION IN ANY ACTION AGAINST IT AS
CONTEMPLATED BY THIS
SECTION
15
BY
REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID,
TO ITS
ADDRESS FOR THE GIVING OF NOTICES. ANY FINAL JUDGMENT RENDERED AGAINST THE
COMPANY OR THE HOLDER IN ANY ACTION OR PROCEEDING SHALL BE CONCLUSIVE AS
TO THE
SUBJECT OF SUCH FINAL JUDGMENT AND MAY BE ENFORCED IN OTHER JURISDICTIONS
IN ANY
MANNER PROVIDED BY LAW. THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE COMPANY
AND THE HOLDER HEREUNDER SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY,
INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF COLORADO, U.S.A.,
WITHOUT
REGARD TO ITS RULES OF CONFLICTS OF LAW.
(ii)
THE
COMPANY AND THE HOLDER HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY
IN
ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT, POWER, OR REMEDY
UNDER
OR IN CONNECTION WITH THIS NOTE OR ANY OF THE CONTEMPLATED TRANSACTIONS OR
UNDER
OR IN CONNECTION WITH ANY AMENDMENT, INSTRUMENT, DOCUMENT, OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH
OR
THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS
NOTE
OR ANY TRANSACTION CONTEMPLATED BY THIS NOTE, AND AGREE THAT ANY SUCH ACTION
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE TERMS AND PROVISIONS
OF
THIS
SECTION
15
CONSTITUTE A MATERIAL INDUCEMENT FOR THE COMPANY ISSUING THIS NOTE.
IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed under
its
corporate seal (if any).
Dated:
________________
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AEROGROW
INTERNATIONAL, INC.
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[CORPORATE SEAL]
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By:
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Name:
W.
Michael Bissonnette
Its:
President
and CEO
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ASSIGNMENT
FORM
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CONVERSION
NOTICE
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To
assign this Note, fill in the form below:
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To
convert this Note, check the box
o
.
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I
or we assign and transfer this Note to
(Insert
assignee’s soc. sec. or tax ID no.)
(Print
or type assignee’s name, address and zip code)
and
irrevocably appoint _________________________
agent
to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
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To
convert only part of this Note, state the principal amount to be
converted
(which must be $1,000 or an integral multiple of $1,000):
If
you want the stock certificate made out in another person’s name fill in
the form below:
(Insert
the other person’s soc. sec. tax ID no.)
(Print
or type other person’s name, address and zip code)
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Dated:
____________________, 200_
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Signature:
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Signature
Guaranteed:
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Participant
in a Recognized Signature
Guarantee Medallion Program
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Signature:
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(Sign
exactly as your name(s) first appear(s)s on this
Note)
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EXHIBIT
4.5
No.
_______
$10.00
WARRANT
To
Purchase Common Stock
of
AeroGrow
International, Inc.
THIS
CERTIFIES THAT, upon surrender of this $10.00 Warrant at the office of the
Warrant Agent hereinafter named, in the City of Boulder, County of Boulder,
State of Colorado, accompanied by payment as hereinafter provided,
_____________________________________ or assigns (“Holder”) is entitled to
purchase at any time prior to the expiration of the $10.00 Warrant Exercise
Period (as hereinafter defined), but not thereafter, _________________ shares
of
common stock (“Common Stock”), of AeroGrow International, Inc., a Nevada
corporation (“Company”), as such Common Stock shall be constituted at the time
of purchase, which shares have been duly authorized and set aside for issuance
and will, upon such issuance, be fully paid and nonassessable, at the price
of
Two Dollars ($10.00) per share, subject to the terms and provisions set forth
herein and in an agreement by and between the Company and BANK, __________,
Colorado (“Warrant Agent”), and not otherwise.
This
$10.00 Warrant shall be exercisable in whole at any time or in part from
time to
time (provided that not less than Five Hundred (500) shares of Common Stock,
or
any integral multiple of such amount, shall be purchased upon any such partial
exercise hereof), for the period from issuance through December 31, 2007,
provided that the Common Stock issuable upon the exercise of this $10.00
Warrant
is, at the time of exercise, registered or otherwise qualified for sale under
the Securities Act of 1933, as amended, and the securities or “blue sky” laws of
the jurisdiction in which the exercise of this $10.00 Warrant is proposed
to be
effected (“$10.00 Warrant Exercise Period”). Upon the expiration of the $10.00
Warrant Exercise Period, this $10.00 Warrant will expire and become void
and of
no value. No fractional shares will be issued upon the exercise
hereof.
This
$10.00 Warrant shall be registered at the office of the Warrant Agent and
is
transferable only at said office by the registered Holder hereof or his duly
authorized attorney upon surrender of this certificate, properly
endorsed.
Upon
any
adjustment of the number of shares of Common Stock that may be purchased
upon
the exercise of this $10.00 Warrant and/or the purchase price per share,
then in
each such case the Company shall give written notice thereof, as herein below
provided, which notice shall state the purchase price per share resulting
from
such adjustment and the increase or decrease, if any, in the number of shares
of
Common Stock purchasable at such price upon the exercise of this $10.00 Warrant,
setting forth in reasonable detail the method of calculation and the facts
upon
which such calculation is based.
NEITHER
THIS $10.00 WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”), AND SUCH
SECURITIES ARE BEING SOLD IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION
PROVIDED IN SECTION 3(a)(11) OF THE ACT AND RULE 147 PROMULGATED THEREUNDER.
ACCORDINGLY, RESALES AND TRANSFERS OF THESE SECURITIES ARE STRICTLY LIMITED
TO
RESIDENTS OF THE STATE OF COLORADO FOR A PERIOD OF AT LEAST NINE MONTHS FROM
THE
DATE OF THE LAST SALE OF THE OFFERING BY THE ISSUER OF THE SECURITIES IN
WHICH
THE SECURITIES ARE DEEMED TO BE A PART
.
The
Holder of this $10.00 Warrant shall not by virtue thereof have any rights
of a
shareholder of the Company or to notice of meetings of shareholders or of
any
other proceedings of the Company
.
This
$10.00 Warrant is divisible on surrender, in which case a new $10.00 Warrant
or
Warrants will be issued.
Commencing
January 1, 2005, and at any time thereafter until and including, but not
after,
the expiration of the $10.00 Warrant Exercise Period, provided that the Common
Stock is quoted on the NASD
OTC
Bulletin Board
,
or
other national exchange, the Company may, at its option, redeem all of the
$10.00 Warrants at any time or some of them from time to time, upon payment
of
$0.01 per $10.00 Warrant to the Holder, provided that the closing bid or
sale
price of the Common Stock, as quoted on the
OTC
Bulletin Board
,
or on a
national securities exchange, equals or exceeds $2.50 per share for twenty
consecutive trading days ending within fifteen days of the date upon which
notice of redemption is given as provided herein. In case less than all of
the
$10.00 Warrants at the time outstanding are to be redeemed, the $10.00 Warrants
to be redeemed shall be selected by the Company by lot. Notices of such optional
redemption will be mailed at least fifteen (15) days prior to the redemption
date to each holder of $10.00 Warrants to be redeemed at the registered address
of such Holder. Each Holder of this $10.00 Warrant, by accepting the same,
agrees upon any such notice of redemption to receive payment for this $10.00
Warrant upon the date fixed for redemption in the amount herein
provided.
If
prior
to the expiration of this $10.00 Warrant, by exercise hereof or by its
terms:
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(a)
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The
Company shall be recapitalized through the subdivision of its outstanding
shares of Common Stock into a greater number of shares, or shall
by
exchange or substitution of or for its outstanding Common Stock
or
otherwise, reduce the number of such shares, then in each such
case the
number of shares deliverable upon the exercise of this $10.00 Warrant
shall be changed in proportion to such increase or decrease of
the
outstanding shares of such Common Stock of the Company, without
any change
in the aggregate payment by the $10.00 Warrant Holder from the
aggregate
payment specified on the face of this $10.00
Warrant.
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(b)
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A
dividend shall be declared or paid at any time on the Common Stock
of the
Company in its Common Stock or in securities convertible into Common
Stock
of the Company, then in each such case the number of shares deliverable
upon the exercise thereafter of this $10.00 Warrant shall, without
requiring any payment by the $10.00 Warrant Holder in addition
to the
payment specified on the face hereof, be increased in proportion
to the
increase, through such dividend, in the number of outstanding shares
of
Common Stock of the Company. In the computation of the increased
number of
shares deliverable upon the exercise of this $10.00 Warrant, any
dividend
paid or distributed upon the Common Stock in securities convertible
into
Common Stock shall be treated as a dividend paid in Common Stock
to the
extent that shares of Common Stock are issuable upon the conversion
thereof. The obligations of the Company and the rights of the Holder
hereof shall not be affected by the exercise of any conversion
privileges
heretofore granted to the holders of any of the stock or securities
of the
Company or of any other
corporation.
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(c)
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The
Company shall, at any time while any of the $10.00 Warrants are
outstanding, declare a dividend on its Common Stock, other than
as
provided in the preceding paragraph (b), then in each such case
the
Company shall give notice in writing to the registered Holder of
this
$10.00 Warrant, and such dividends so declared shall be made payable
only
to the shareholders of record on a date at least ten (10) days
subsequent
to the date of such notice, including stock issued pursuant to
the
exercise of such $10.00 Warrants prior to such record
date.
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(d)
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The
Company shall be recapitalized by reclassifying its outstanding
Common
Stock into stock without par value, or the Company or a successor
corporation shall consolidate or merge with, or convey all, or
substantially all, of its or any successor corporation's property
or
assets to, any other corporation or corporations (any such corporation
being included within the meaning of "successor corporation" as
hereinbefore used in the event of any consolidation or merger of
such
corporation with, or the sale of all, or substantially all, of
the
property or assets of such corporation to another corporation or
corporations) then in each such case, as a condition of such
recapitalization, consolidation, merger or conveyance, lawful and
adequate
provision shall be made whereby the Holder of each $10.00 Warrant
shall
thereafter have the right to purchase, upon the basis and upon
the terms
and conditions specified in this $10.00 Warrant, in lieu of the
shares of
Common Stock of the Company theretofore purchasable upon the exercise
of
this $10.00 Warrant, such shares of stock, securities or other
assets as
may be issued or payable with respect to, or in exchange for, the
number
of shares of Common Stock of the Company theretofore purchasable
upon the
exercise of this $10.00 Warrant had such recapitalization, consolidation,
merger or conveyance not taken place; and in any such event the
rights of
the $10.00 Warrant Holder to an adjustment of the number of shares
of
Common Stock purchasable upon the exercise of this $10.00 Warrant
as
hereinbefore provided shall continue and be preserved in respect
of any
stock that the $10.00 Warrant Holder becomes entitled to purchase.
It
shall be a condition of such consolidation, merger or conveyance
that each
successor corporation shall assume, in manner and form satisfactory
to the
Warrant Agent, the obligation to deliver to the $10.00 Warrant
Holder,
upon the exercise of this $10.00 Warrant, such shares of stock,
securities
or assets as, in accordance with the provisions of this $10.00
Warrant,
shall have been provided for such purpose. The Warrant Agent shall
assume
no liability for its exercise of discretion hereunder, other than
for
willful wrongdoing.
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This
$10.00 Warrant shall be deemed to have been exercised, and the Holder exercising
the same to have become a shareholder of record of the Company, for the purpose
of receiving dividends and for all other purposes whatsoever as of the date
the
Holder surrendered this $10.00 Warrant accompanied by payment in cash, as
herein
provided. The Company agrees that, while this $10.00 Warrant shall remain
valid
and outstanding, its stock transfer books shall not be closed for any purpose
whatsoever, except under arrangements that shall insure to Holders exercising
$10.00 Warrants or applying for transfer of stock within five (5) days after
the
books shall have been reopened all rights and privileges that they might
have
had or received if the transfer books had not been closed and they had exercised
their $10.00 Warrants at any time during which such transfer books shall
have
been closed.
Upon
each
increase or decrease in the number of shares of Common Stock of the Company
deliverable upon the exercise of this $10.00 Warrant, or in the event of
changes
in the rights of the $10.00 Warrant Holders by reason of other events
hereinbefore set forth, then in each such case the Company shall forthwith
file
with the Warrant Agent a certificate executed by its President or one of
its
Vice Presidents, and attested by its Secretary or one of its Assistant
Secretaries, stating the increased or decreased number of shares so deliverable
and setting forth in reasonable detail the method of calculation and the
facts
upon which such calculation is based.
The
Company covenants, at all times when $10.00 Warrants are outstanding and
in
effect, to reserve, unissued, such number of shares of Common Stock as it
may be
required to deliver pursuant to the exercise of this $10.00 Warrant, subject
to
consolidation, merger or sale, as hereinabove set forth.
As
used
herein, the terms "Holder" "$10.00 Warrant Holder" and "Holder of this $10.00
Warrant" shall be construed to mean the registered holder hereof, and, in
the
case of any notice required by this $10.00 Warrant to be given to the $10.00
Warrant Holder, it shall be sufficient if mailed to the last known address
of
such Holder as the same appears on the books of the Company.
IN
WITNESS WHEREOF, AEROGROW INTERNATIONAL, INC. has caused this $10.00 Warrant
to
be signed in its corporate name by its President or a Vice President, manually
or in facsimile, and its corporate seal or a facsimile to be imprinted hereon
and attested by the manual or facsimile signature of its Secretary or an
Assistant Secretary, as of the day and year first above written.
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AEROGROW
INTERNATIONAL, INC.
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Attest:
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By:
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Secretary
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President
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[CORPORATE
SEAL]
SUBSCRIPTION
FORM
(To
be
Executed Upon Exercise of $10.00 Warrant)
The
undersigned, the Holder(s) or assignee(s) of such Holder(s) of the within
$10.00
Warrant, hereby (i) subscribes for shares of Common Stock that the undersigned
is entitled to purchase under the terms of the within $10.00 Warrant and
(ii)
tenders herewith the full exercise price of all shares subscribed
for.
Dated:
_________________________
Number
of
Shares Subscribed For:
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______________
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(Signature)
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(Signature)
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ASSIGNMENT
(To
Be
Executed By the Registered Holder to Effect
a
Transfer of the Within $10.00 Warrant)
FOR
VALUE
RECEIVED, the undersigned $10.00 Warrant Holder(s) do(es) hereby sell, assign
and transfer unto ________________________________________ the right to purchase
common stock evidenced by this $10.00 Warrant, and does hereby irrevocably
constitute and appoint __________________________________________to transfer
the
said right on the books of the Company, with full power of
substitution.
Dated:
_________________________
NEITHER
THIS $10.00 WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”), AND SUCH
SECURITIES ARE BEING SOLD IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION
PROVIDED IN SECTION 3(a)(11) OF THE ACT AND RULE 147 PROMULGATED THEREUNDER.
ACCORDINGLY, RESALES AND TRANSFERS OF THESE SECURITIES ARE STRICTLY LIMITED
TO
RESIDENTS OF THE STATE OF COLORADO FOR A PERIOD OF AT LEAST NINE MONTHS FROM
THE
DATE OF THE LAST SALE OF THE OFFERING BY THE ISSUER OF THE SECURITIES IN
WHICH
THE SECURITIES ARE DEEMED TO BE A PART
.
EXHIBIT
4.6
No.
_______
$15.00
WARRANT
To
Purchase Common Stock
of
AeroGrow
International, Inc.
THIS
CERTIFIES THAT, upon surrender of this $15.00 Warrant at the office of the
Warrant Agent hereinafter named, in the City of Boulder, County of Boulder,
State of Colorado, accompanied by payment as hereinafter provided,
_____________________________________ or assigns (“Holder”) is entitled to
purchase at any time prior to the expiration of the $15.00 Warrant Exercise
Period (as hereinafter defined), but not thereafter, _________________ shares
of
common stock (“Common Stock”), of AeroGrow International, Inc., a Nevada
corporation (“Company”), as such Common Stock shall be constituted at the time
of purchase, which shares have been duly authorized and set aside for issuance
and will, upon such issuance, be fully paid and nonassessable, at the price
of
Three Dollars ($15.00) per share, subject to the terms and provisions set
forth
herein and in an agreement by and between the Company and BANK, ____________,
Colorado (“Warrant Agent”), and not otherwise.
This
$15.00 Warrant shall be exercisable in whole at any time or in part from
time to
time (provided that not less than Five Hundred (500) shares of Common Stock,
or
any integral multiple of such amount, shall be purchased upon any such partial
exercise hereof), for the period from issuance through December 31, 2007,
provided that the Common Stock issuable upon the exercise of this $15.00
Warrant
is, at the time of exercise, registered or otherwise qualified for sale under
the Securities Act of 1933, as amended, and the securities or “blue sky” laws of
the jurisdiction in which the exercise of this $15.00 Warrant is proposed
to be
effected (“$15.00 Warrant Exercise Period”). Upon the expiration of the $15.00
Warrant Exercise Period, this $15.00 Warrant will expire and become void
and of
no value. No fractional shares will be issued upon the exercise
hereof.
This
$15.00 Warrant shall be registered at the office of the Warrant Agent and
is
transferable only at said office by the registered Holder hereof or his duly
authorized attorney upon surrender of this certificate, properly
endorsed.
Upon
any
adjustment of the number of shares of Common Stock that may be purchased
upon
the exercise of this $15.00 Warrant and/or the purchase price per share,
then in
each such case the Company shall give written notice thereof, as herein below
provided, which notice shall state the purchase price per share resulting
from
such adjustment and the increase or decrease, if any, in the number of shares
of
Common Stock purchasable at such price upon the exercise of this $15.00 Warrant,
setting forth in reasonable detail the method of calculation and the facts
upon
which such calculation is based.
NEITHER
THIS $15.00 WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”), AND SUCH
SECURITIES ARE BEING SOLD IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION
PROVIDED IN SECTION 3(a)(11) OF THE ACT AND RULE 147 PROMULGATED THEREUNDER.
ACCORDINGLY, RESALES AND TRANSFERS OF THESE SECURITIES ARE STRICTLY LIMITED
TO
RESIDENTS OF THE STATE OF COLORADO FOR A PERIOD OF AT LEAST NINE MONTHS FROM
THE
DATE OF THE LAST SALE OF THE OFFERING BY THE ISSUER OF THE SECURITIES IN
WHICH
THE SECURITIES ARE DEEMED TO BE A PART
.
The
Holder of this $15.00 Warrant shall not by virtue thereof have any rights
of a
shareholder of the Company or to notice of meetings of shareholders or of
any
other proceedings of the Company
.
This
$15.00 Warrant is divisible on surrender, in which case a new $15.00 Warrant
or
Warrants will be issued.
Commencing
January 1, 2005, and at any time thereafter until and including, but not
after,
the expiration of the $15.00 Warrant Exercise Period, provided that the Common
Stock is quoted on the NASD
OTC
Bulletin Board
,
or
other national exchange, the Company may, at its option, redeem all of the
$15.00 Warrants at any time or some of them from time to time, upon payment
of
$0.01 per $15.00 Warrant to the Holder, provided that the closing bid or
sale
price of the Common Stock, as quoted on the
OTC
Bulletin Board
,
or on a
national securities exchange, equals or exceeds $3.50 per share for twenty
consecutive trading days ending within fifteen days of the date upon which
notice of redemption is given as provided herein. In case less than all of
the
$15.00 Warrants at the time outstanding are to be redeemed, the $15.00 Warrants
to be redeemed shall be selected by the Company by lot. Notices of such optional
redemption will be mailed at least fifteen (15) days prior to the redemption
date to each holder of $15.00 Warrants to be redeemed at the registered address
of such Holder. Each Holder of this $15.00 Warrant, by accepting the same,
agrees upon any such notice of redemption to receive payment for this $15.00
Warrant upon the date fixed for redemption in the amount herein
provided.
If
prior
to the expiration of this $15.00 Warrant, by exercise hereof or by its
terms:
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(a)
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The
Company shall be recapitalized through the subdivision of its outstanding
shares of Common Stock into a greater number of shares, or shall
by
exchange or substitution of or for its outstanding Common Stock
or
otherwise, reduce the number of such shares, then in each such
case the
number of shares deliverable upon the exercise of this $15.00 Warrant
shall be changed in proportion to such increase or decrease of
the
outstanding shares of such Common Stock of the Company, without
any change
in the aggregate payment by the $15.00 Warrant Holder from the
aggregate
payment specified on the face of this $15.00
Warrant.
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(b)
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A
dividend shall be declared or paid at any time on the Common Stock
of the
Company in its Common Stock or in securities convertible into Common
Stock
of the Company, then in each such case the number of shares deliverable
upon the exercise thereafter of this $15.00 Warrant shall, without
requiring any payment by the $15.00 Warrant Holder in addition
to the
payment specified on the face hereof, be increased in proportion
to the
increase, through such dividend, in the number of outstanding shares
of
Common Stock of the Company. In the computation of the increased
number of
shares deliverable upon the exercise of this $15.00 Warrant, any
dividend
paid or distributed upon the Common Stock in securities convertible
into
Common Stock shall be treated as a dividend paid in Common Stock
to the
extent that shares of Common Stock are issuable upon the conversion
thereof. The obligations of the Company and the rights of the Holder
hereof shall not be affected by the exercise of any conversion
privileges
heretofore granted to the holders of any of the stock or securities
of the
Company or of any other
corporation.
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(c)
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The
Company shall, at any time while any of the $15.00 Warrants are
outstanding, declare a dividend on its Common Stock, other than
as
provided in the preceding paragraph (b), then in each such case
the
Company shall give notice in writing to the registered Holder of
this
$15.00 Warrant, and such dividends so declared shall be made payable
only
to the shareholders of record on a date at least ten (10) days
subsequent
to the date of such notice, including stock issued pursuant to
the
exercise of such $15.00 Warrants prior to such record
date.
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(d)
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The
Company shall be recapitalized by reclassifying its outstanding
Common
Stock into stock without par value, or the Company or a successor
corporation shall consolidate or merge with, or convey all, or
substantially all, of its or any successor corporation's property
or
assets to, any other corporation or corporations (any such corporation
being included within the meaning of "successor corporation" as
hereinbefore used in the event of any consolidation or merger of
such
corporation with, or the sale of all, or substantially all, of
the
property or assets of such corporation to another corporation or
corporations) then in each such case, as a condition of such
recapitalization, consolidation, merger or conveyance, lawful and
adequate
provision shall be made whereby the Holder of each $15.00 Warrant
shall
thereafter have the right to purchase, upon the basis and upon
the terms
and conditions specified in this $15.00 Warrant, in lieu of the
shares of
Common Stock of the Company theretofore purchasable upon the exercise
of
this $15.00 Warrant, such shares of stock, securities or other
assets as
may be issued or payable with respect to, or in exchange for, the
number
of shares of Common Stock of the Company theretofore purchasable
upon the
exercise of this $15.00 Warrant had such recapitalization, consolidation,
merger or conveyance not taken place; and in any such event the
rights of
the $15.00 Warrant Holder to an adjustment of the number of shares
of
Common Stock purchasable upon the exercise of this $15.00 Warrant
as
hereinbefore provided shall continue and be preserved in respect
of any
stock that the $15.00 Warrant Holder becomes entitled to purchase.
It
shall be a condition of such consolidation, merger or conveyance
that each
successor corporation shall assume, in manner and form satisfactory
to the
Warrant Agent, the obligation to deliver to the $15.00 Warrant
Holder,
upon the exercise of this $15.00 Warrant, such shares of stock,
securities
or assets as, in accordance with the provisions of this $15.00
Warrant,
shall have been provided for such purpose. The Warrant Agent shall
assume
no liability for its exercise of discretion hereunder, other than
for
willful wrongdoing.
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This
$15.00 Warrant shall be deemed to have been exercised, and the Holder exercising
the same to have become a shareholder of record of the Company, for the purpose
of receiving dividends and for all other purposes whatsoever as of the date
the
Holder surrendered this $15.00 Warrant accompanied by payment in cash, as
herein
provided. The Company agrees that, while this $15.00 Warrant shall remain
valid
and outstanding, its stock transfer books shall not be closed for any purpose
whatsoever, except under arrangements that shall insure to Holders exercising
$15.00 Warrants or applying for transfer of stock within five (5) days after
the
books shall have been reopened all rights and privileges that they might
have
had or received if the transfer books had not been closed and they had exercised
their $15.00 Warrants at any time during which such transfer books shall
have
been closed.
Upon
each
increase or decrease in the number of shares of Common Stock of the Company
deliverable upon the exercise of this $15.00 Warrant, or in the event of
changes
in the rights of the $15.00 Warrant Holders by reason of other events
hereinbefore set forth, then in each such case the Company shall forthwith
file
with the Warrant Agent a certificate executed by its President or one of
its
Vice Presidents, and attested by its Secretary or one of its Assistant
Secretaries, stating the increased or decreased number of shares so deliverable
and setting forth in reasonable detail the method of calculation and the
facts
upon which such calculation is based.
The
Company covenants, at all times when $15.00 Warrants are outstanding and
in
effect, to reserve, unissued, such number of shares of Common Stock as it
may be
required to deliver pursuant to the exercise of this $15.00 Warrant, subject
to
consolidation, merger or sale, as hereinabove set forth.
As
used
herein, the terms "Holder" "$15.00 Warrant Holder" and "Holder of this $15.00
Warrant" shall be construed to mean the registered holder hereof, and, in
the
case of any notice required by this $15.00 Warrant to be given to the $15.00
Warrant Holder, it shall be sufficient if mailed to the last known address
of
such Holder as the same appears on the books of the Company.
IN
WITNESS WHEREOF, AEROGROW INTERNATIONAL, INC. has caused this $15.00 Warrant
to
be signed in its corporate name by its President or a Vice President, manually
or in facsimile, and its corporate seal or a facsimile to be imprinted hereon
and attested by the manual or facsimile signature of its Secretary or an
Assistant Secretary, as of the day and year first above written.
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AEROGROW
INTERNATIONAL, INC.
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Attest:
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By:
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Secretary
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President
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[CORPORATE
SEAL]
SUBSCRIPTION
FORM
(To
be
Executed Upon Exercise of $15.00 Warrant)
The
undersigned, the Holder(s) or assignee(s) of such Holder(s) of the within
$15.00
Warrant, hereby (i) subscribes for shares of Common Stock that the undersigned
is entitled to purchase under the terms of the within $15.00 Warrant and
(ii)
tenders herewith the full exercise price of all shares subscribed
for.
Dated:
_________________________
Number
of
Shares Subscribed For:
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______________
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(Signature)
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(Signature)
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(To
Be
Executed By the Registered Holder to Effect
a
Transfer of the Within $15.00 Warrant)
FOR
VALUE
RECEIVED, the undersigned $15.00 Warrant Holder(s) do(es) hereby sell, assign
and transfer unto ________________________________________ the right to purchase
common stock evidenced by this $15.00 Warrant, and does hereby irrevocably
constitute and appoint __________________________________________to transfer
the
said right on the books of the Company, with full power of
substitution.
Dated:
_________________________
NEITHER
THIS $15.00 WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”), AND SUCH
SECURITIES ARE BEING SOLD IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION
PROVIDED IN SECTION 3(a)(11) OF THE ACT AND RULE 147 PROMULGATED THEREUNDER.
ACCORDINGLY, RESALES AND TRANSFERS OF THESE SECURITIES ARE STRICTLY LIMITED
TO
RESIDENTS OF THE STATE OF COLORADO FOR A PERIOD OF AT LEAST NINE MONTHS FROM
THE
DATE OF THE LAST SALE OF THE OFFERING BY THE ISSUER OF THE SECURITIES IN
WHICH
THE SECURITIES ARE DEEMED TO BE A PART
.
THIS
WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT AND THE WARRANT SHARES ISSUABLE UPON EXERCISE
OF
THIS WARRANT MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF
SUCH REGISTRATION OR PURSUANT TO AN EXEMPTION THEREFROM UNDER THE SECURITIES
ACT
AND SUCH STATE LAWS, SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY
TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. THIS
WARRANT AND THE COMPANY'S SUBSCRIPTION AGREEMENT WITH THE HOLDER SET FORTH
THE
COMPANY’S OBLIGATIONS TO REGISTER FOR RESALE THE WARRANT SHARES. A COPY OF SUCH
SUBSCRIPTION AGREEMENT IS AVAILABLE FOR INSPECTION AT THE COMPANY’S OFFICE.
THIS
WARRANT MAY NOT, IN ANY EVENT, BE TRANSFERRED TO ANY PERSON OR ENTITY THAT
IS
NOT AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501, PROMULGATED UNDER
THE
ACT.
__________
Warrants
Void
after 5:00 p.m., Colorado time on February ___, 2011
COMMON
STOCK
PURCHASE
WARRANT
OF
AERO
GROW
INTERNATIONAL, INC.
AERO
GROW
INTERNATIONAL, INC., a Nevada corporation (the “Company”), hereby certifies
that, for value received
,
______________
(the
“Warrant Holder”) is the owner of the number of common stock purchase warrants
(“Warrants”) specified above, each of which entitles the holder thereof to
purchase, at any time during the period commencing on the Commencement Date
(as
defined herein) and ending on the Expiration Date (as defined herein), one
fully
paid and non-assessable share of common stock, par value $.001 per share
(“Common Stock”), of the Company at a purchase price equal to the Exercise Price
(as defined in Section 1.2) in lawful money of the United States of America
in
cash, subject to adjustment as hereinafter provided. These Warrants are part
of
the duly authorized issuance of Units of the Company, limited in aggregate
principal amount to $3,000,000 of notes included in said Units, issued or to
be
issued by the Company pursuant to a certain private placement memorandum dated
June 6, 2005 (“Offering”). These warrants are being issued upon conversion of
said notes to Common Stock in accordance with the terms of the
Offering.
1.
WARRANT;
EXERCISE PRICE
.
1.1
Each
Warrant shall entitle the Warrant Holder the right to purchase one share of
Common Stock of the Company (individually, a “Warrant Share” severally, the
“Warrant Shares”).
1.2
The
purchase price payable upon exercise of each Warrant (“Exercise Price”) shall be
$6.00 per share. The Exercise Price and number of Warrant Shares purchasable
pursuant to each Warrant are subject to adjustment as provided in Section 8.
2.
EXERCISE
OF WARRANT; EXPIRATION DATE
.
2.1
This
Warrant is exercisable during the period commencing on February ___, 2006
(“Commencement Date”) and ending on the Expiration Date (as defined below in
Section 2.5), in whole or from time to time in part, at the option of the
Warrant Holder, upon surrender of this Warrant to the Company together with
a
duly completed form of exercise attached hereto and payment of an amount equal
to the then applicable Exercise Price multiplied by the number of Warrant Shares
then being purchased upon such exercise.
2.2
Each
exercise of this Warrant shall be deemed to have been effected immediately
prior
to the close of business on the day on which this Warrant shall have been
surrendered to the Company as provided in Section 2.1. At such time, the person
or persons in whose name or names any certificates for Warrant Shares shall
be
issuable upon such exercise as provided in subsection 2.3 below shall be deemed
to have become the holder or holders of record of the Warrant Shares represented
by such certificates.
2.3
Within
three business days after the exercise of the purchase right represented by
this
Warrant, the Company at its expense will use its best efforts to cause to be
issued in the name of, and delivered to, the Warrant Holder, or, subject to
the
terms and conditions hereof, to such other individual or entity as such Warrant
Holder (upon payment by such Warrant Holder of any applicable transfer taxes)
may direct:
(a)
a
certificate or certificates for the number of full Warrant Shares to which
such
Warrant Holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which such Warrant Holder would otherwise be entitled,
cash
in an amount determined pursuant to Section 2.4 hereof, and
(b)
in
case
such exercise is in part only, a new Warrant or Warrants (dated the date hereof)
of like tenor, stating on the face or faces thereof the number of shares
currently stated on the face of this Warrant minus the number of such shares
purchased by the Warrant Holder upon such exercise as provided in subsection
2.1
(prior to any adjustments made thereto pursuant to the provisions of this
Warrant).
2.4
The
Company shall not be required upon the exercise of this Warrant to issue any
fractional shares, but shall make an adjustment thereof in cash on the basis
of
the “last sale price” (as defined below) of the Company's Common Stock on the
trading day immediately prior to the date of exercise. For purposes of this
Section 2.4, “last sale price” shall mean (i) if the Common Stock is listed on a
national securities exchange or quoted on the Nasdaq National Market, Nasdaq
SmallCap Market or NASD OTC Bulletin Board (or successor such as the Bulletin
Board Exchange), the last sale price of the Common Stock in the principal
trading market for the Common Stock as reported by the exchange, Nasdaq or
the
NASD, as the case may be; (ii) if the Common Stock is not listed on a national
securities exchange or quoted on the Nasdaq National Market, Nasdaq SmallCap
Market or the NASD OTC Bulletin Board (or successor such as the Bulletin Board
Exchange), but is traded in the residual over-the-counter market, the closing
bid price for the Common Stock on the last trading day preceding the date in
question for which such quotations are reported by the Pink Sheets, LLC or
similar publisher of such quotations; and (iii) if the fair market value of
the
Common Stock cannot be determined pursuant to clause (i) or (ii) above, such
price as the Board of Directors of the Company shall determine, in good faith.
2.5
The
term
“Expiration Date” shall mean 5:00 p.m., Colorado time on February ___, 2011, or
if such date shall in the State of Colorado be a holiday or a day on which
banks
are authorized to close, then 5:00 p.m., Colorado time the next following day
which in the State of Colorado is not a holiday or a day on which banks are
authorized to close or in the event of any merger, consolidation, or sale of
substantially all the assets of the Company as, an entirety, resulting in any
distribution to the Company’s stockholders, prior to the Expiration Date, the
Warrant Holder shall have the right to exercise this Warrant commencing at
such
time through the Expiration Date into the kind and amount of shares of stock
and
other securities and property (including cash) receivable by a holder of the
number of shares of Common Stock into which this Warrant might have been
exercisable immediately prior thereto.
2.6
The
Company has engaged Keating Securities, LLC (“Keating”), on an exclusive basis,
as its agent for the solicitation of this Warrant. In each instance in which
a
Warrant is exercised through the solicitation by Keating, the Company will
pay
from the proceeds received upon exercise of the Warrant, a fee of 5% of the
purchase price to Keating. The provisions of this Section 2.6 may not be
modified, amended or deleted without the prior written consent of
Keating.
3.
REGISTRATION
AND TRANSFER ON COMPANY BOOKS
.
3.1
The
Company (or an agent of the Company) will maintain a register containing the
names and addresses of the Warrant Holders. Any Warrant Holder may change its,
his or her address as shown on the warrant register by written notice to the
Company requesting such change.
3.2
The
Company shall register upon its books any transfer of a Warrant upon surrender
of same as provided in Section 5.
4.
RESERVATION
OF SHARES
.
The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of this Warrant, such Warrant Shares and other stock,
securities and property, as from time to time shall be issuable upon the
exercise of this Warrant.
As
long
as the Warrant shall be outstanding, the Company shall use its best efforts
to
cause all Warrant Shares issuable upon exercise of the Warrants to be listed
(subject to official notice of issuance) on each securities exchange (or, if
applicable on Nasdaq or the OTC Bulletin Board or any successor trading market)
on which the Common Stock is then listed and/or quoted.
5.
EXCHANGE,
TRANSFER, ASSIGNMENT OR LOSS OR MUTILATION OF WARRANTS
.
This
Warrant is exchangeable, without expense, at the option of the Warrant Holder,
upon presentation and surrender hereof to the Company for other warrants of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder.
Subject to the terms of Section 6, upon surrender of this Warrant to the Company
at its principal office or at the office of its transfer agent, if any, with
the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment
and
this Warrant shall be promptly canceled. This Warrant may be divided or combined
with other warrants which carry the same rights upon presentation hereof at
the
principal office of the Company together with a written notice specifying the
names and denominations in which new Warrants are to be issued and signed by
the
Warrant Holder hereof. The term “Warrant” as used herein includes any Warrants
into which this Warrant may be divided or exchanged. Upon receipt by the Company
of reasonable evidence of the ownership of and the loss, theft, destruction
or
mutilation of this Warrant and, in the case of loss, theft or destruction,
of
indemnity reasonably satisfactory to the Company, or, in the case of mutilation,
upon surrender and cancellation of the mutilated Warrant, the Company shall
execute and deliver in lieu thereof a new Warrant of like tenor and date
representing an equal number of Warrants.
6.
LIMITATION
ON EXERCISE AND SALES
.
Each
holder of this Warrant acknowledges that this Warrant and the Warrant Shares
have not been registered under the Securities Act, as of the date of issuance
hereof and agrees not to sell, pledge, distribute, offer for sale, transfer
or
otherwise dispose of this Warrant, or any Warrant Shares issued upon its
exercise, in the absence of: (i) an effective registration statement under
the
Securities Act as to this Warrant or such Warrant Shares, as the case may be,
under any applicable Blue Sky or state securities law then in effect, or (ii)
an
opinion of counsel, satisfactory to the Company, that such registration and
qualification are not required. In addition, this Warrant only may be
transferred to a transferee who certifies in writing to the Warrant Holder
and
to the Company that such transferee is an “accredited investor” within the
meaning of Rule 501(a) promulgated by the Commission under the Securities
Act.
The
Company shall be under no obligation to issue the shares covered by such
exercise unless and until the Warrant Holder shall have executed the form of
exercise annexed hereto that states that at the time of such exercise that
it is
then an “accredited investor” within the meaning of Rule 501(c) promulgated by
the Commission under the Securities Act, is acquiring such shares for its own
account, and will not transfer the Warrant Shares unless pursuant to an
effective and current registration statement under the Securities Act or an
exemption from the registration requirements of the Securities Act and any
other
applicable restrictions, in which event the Warrant Holder shall be bound by
the
provisions of a legend or legends to such effect that shall be endorsed upon
the
certificate(s) representing the Warrant Shares issued pursuant to such exercise.
In such event, the Warrant Shares issued upon exercise hereof shall be imprinted
with a legend in substantially the following form:
“This
security has been acquired for investment and has not been registered under
the
Securities Act of 1933, as amended, or applicable state securities laws. This
security may not be sold, pledged or otherwise transferred in the absence of
such registration or pursuant to an exemption therefrom under said Act and
such
laws, supported by an opinion of counsel, reasonably satisfactory to the Company
and its counsel, that such registration is not required.”
7.
REGISTRATION
RIGHTS OF WARRANT HOLDER
.
The
Company has agreed to file and to use its best efforts to have declared
effective a registration statement with the Commission to register for resale
the Warrant Shares purchasable under this Warrant on a registration statement
(the “Registration Statement”), in accordance with and subject to the terms and
conditions of the registration rights discussed in Section 8 of the Subscription
Agreement, as amended, signed by the original Holder of this Warrant and
accepted by the Company in connection with the Offering to which these Warrants
relate. These registration rights shall inure to the benefit of the transferees
of this Warrant and the Warrant Shares.
8.
ADJUSTMENT
OF PURCHASE PRICE AND NUMBER OF SHARES DELIVERABLE
.
The
Exercise Price and the number of Warrant Shares purchasable pursuant to each
Warrant shall be subject to adjustment from time to time as hereinafter set
forth in this Section 8:
(a)
In
case,
prior to the expiration of this Warrant by exercise or by its terms, the Company
shall issue any shares of its Common Stock as a stock dividend or subdivide
the
number of outstanding shares of its Common Stock into a greater number of
shares, then in either of such cases, the then applicable Exercise Price per
Warrant Share purchasable pursuant to this Warrant in effect at the time of
such
action shall be proportionately reduced and the number of Warrant Shares at
that
time purchasable pursuant to this Warrant shall be proportionately increased;
and conversely, in the event the Company shall reduce the number of outstanding
shares of Common Stock by combining such shares into a smaller number of shares,
then, in such case, the then applicable Exercise Price per Warrant Share
purchasable pursuant to this Warrant in effect at the time of such action shall
be proportionately increased and the number of Warrant Shares at that time
purchasable pursuant to this Warrant shall be proportionately decreased. If
the
Company shall, at any time during the life of this Warrant, declare a dividend
payable in cash on its Common Stock and shall at substantially the same time
offer to its stockholders a right to purchase new Common Stock from the proceeds
of such dividend or for an amount substantially equal to the dividend, all
Common Stock so issued shall, for the purpose of this Warrant, be deemed to
have
been issued as a stock dividend. Any dividend paid or distributed upon the
Common Stock in stock of any other class of securities convertible into shares
of Common Stock shall be treated as a dividend paid in Common Stock to the
extent that shares of Common Stock are issuable upon conversion
thereof.
(b)
In
case,
prior to the expiration of this Warrant by exercise or by its terms, the Company
shall be recapitalized by reclassifying its outstanding Common Stock, (other
than a change in par value to no par value), or the corporation or a successor
corporation shall consolidate or merge with or convey all or substantially
all
of its or of any successor corporation’s property and assets to any other
corporation or corporations (any such other corporations being included within
the meaning of the term “successor corporation” hereinbefore used in the event
of any consolidation or merger of any such other corporation with, or the sale
of all or substantially all of the property of any such other corporation to,
another corporation or corporations), then, as a condition of such
recapitalization, consolidation, merger or conveyance, lawful and adequate
provision shall be made whereby the holder of this Warrant shall thereafter
have
the right to purchase, upon the basis and on the terms and conditions specified
in this Warrant, in lieu of the Warrant Shares theretofore purchasable upon
the
exercise of this Warrant, such shares of stock, securities or assets as may
be
issued or payable with respect to, or in exchange for the number of Warrant
Shares theretofore purchasable upon the exercise of this Warrant, had such
recapitalization, consolidation, merger, or conveyance not taken place; and
in
any such event, the rights of the Warrant Holder to any adjustment in the number
of Warrant Shares purchasable upon the exercise of this Warrant, as hereinbefore
provided, shall continue and be preserved in respect of any stock which the
Warrant Holder becomes entitled to purchase.
(c)
In
case
the Company at any time while this Warrant shall remain unexpired and
unexercised shall sell all or substantially all of its property or dissolve,
liquidate, or wind up its affairs, lawful provision shall be made as part of
the
terms of any such sale, dissolution, liquidation or winding up, so that the
holder of this Warrant may thereafter receive upon exercise hereof in lieu
of
each Warrant Share that it would have been entitled to receive, the same kind
and amount of any securities or assets as may be issuable, distributable or
payable upon any such sale, dissolution, liquidation or winding up with respect
to each share of Common Stock of the Company, provided, however, that in any
case of any such sale or of dissolution, liquidation or winding up, the right
to
exercise this Warrant shall terminate on a date fixed by the Company; such
date
so fixed to be not earlier than 5:00 p.m., Colorado time, on the forty-fifth
day
next succeeding the date on which notice of such termination of the right to
exercise this Warrant has been given by mail to the registered holder of this
Warrant at its address as it appears on the books of the Company.
(d)
No
adjustment in the per share Exercise Price shall be required unless such
adjustment would require an increase or decrease in the Exercise Price by at
least $0.01; provided, however, that any adjustments that by reason of this
subsection are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 8
shall be made to the nearest cent or to the nearest 1/100th of a share, as
the
case may be.
(e)
The
Company will not, by amendment of its Certificate of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company but will at all times in good faith assist
in
the carrying out of all the provisions of this Section 8 and in the taking
of
all such actions as may be necessary or appropriate in order to protect against
impairment of the rights of the Warrant Holder to adjustments in the Exercise
Price.
(f)
Upon
the
happening of any event requiring an adjustment of the Exercise Price hereunder,
the Company shall give written notice thereof to the Warrant Holder stating
the
adjusted Exercise Price and the adjusted number of Warrant Shares resulting
from
such event and setting forth in reasonable detail the method of calculation
and
the facts upon which such calculation is based.
9.
VOLUNTARY
ADJUSTMENT BY THE COMPANY
.
The
Company may, at its option, at any time during the term of the Warrants, reduce
the then current Exercise Price to any amount deemed appropriate by the Board
of
Directors of the Company and/or extend the date of the expiration of the
Warrants.
10.
RIGHTS
OF THE HOLDER
.
The
Warrant Holder shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or equity, and the rights of the
Warrant Holder are limited to those expressed in the Warrant and are not
enforceable against the Company except to the extent set forth herein.
11.
NOTICES
OF RECORD DATE
.
In
case:
(a)
the
Company shall take a record of the holders of its Common Stock (or other stock
or securities at the time deliverable upon the exercise of this Warrant) for
the
purpose of entitling or enabling them to receive any dividend or other
distribution, or to receive any right to subscribe for or purchase any shares
of
any class or any other securities, or to receive any other right, or
(b)
of
any
capital reorganization of the Company, any reclassification of the capital
stock
of the Company, any consolidation or merger of the Company with or into another
corporation (other than a consolidation or merger in which the Company is the
surviving entity), or any transfer of all or substantially all of the assets
of
the Company, or
(c)
of
the
voluntary or involuntary dissolution, liquidation or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to
the
Warrant Holder a notice specifying, as the case may be, (i) the date on which
a
record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right,
or
(ii) the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is
to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be mailed at least twenty days prior to the record date or
effective date for the event specified in such notice, provided that the failure
to mail such notice shall not affect the legality or validity of any such
action.
12.
SUCCESSORS
.
The
rights and obligations of the parties to this Warrant will inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
successors, assigns, pledgees, transferees and purchasers. Without limiting
the
foregoing, the registration rights referred to in Section 7 of this Warrant
shall inure to the benefit of the Warrant Holder and all the Warrant Holder’s
successors, heirs, pledgees, assignees, transferees and purchasers of this
Warrant and the Warrant Shares.
13.
CHANGE
OR WAIVER
.
Any
term of this Warrant may be changed or waived only by an instrument in writing
signed by the party against whom enforcement of the change or waiver is sought.
14.
HEADINGS
.
The
headings in this Warrant are for purposes of reference only and shall not limit
or otherwise affect the meaning of any provision of this Warrant.
15.
GOVERNING
LAW
.
This
Warrant shall be governed by and construed in accordance with the laws of the
State of Colorado as such laws are applied to contracts made and to be fully
performed entirely within that state between residents of that state except
to
the extent the laws of the State of Nevada mandatorily apply because the Company
is incorporated in the State of Nevada.
16.
JURISDICTION
AND VENUE
.
The
Company (i) agrees that any legal suit, action or proceeding arising out of
or
relating to this Warrant shall be instituted exclusively in the District Court,
City and County of Denver or in the United States District Court for the
District of Colorado, (ii) waives any objection to the venue of any such suit,
action or proceeding and the right to assert that such forum is not a convenient
forum, and (iii) irrevocably consents to the jurisdiction of the District Court,
City and County of Denver, and the United States District Court for the District
of Colorado in any such suit, action or proceeding, and the Company further
agrees to accept and acknowledge service or any and all process that may be
served in any such suit, action or proceeding in the District Court, City and
County of Denver or in the United States District Court for the District of
Colorado in person or by certified mail addressed as provided in the following
Section.
17.
MAILING
OF NOTICES, ETC
.
All
notices and other communications under this Warrant (except payment) shall
be in
writing and shall be sufficiently given if delivered to the addressees in
person, by Federal Express or similar overnight courier service, or if mailed,
postage prepaid, by certified mail, return receipt requested, as follows:
|
|
Registered
Holder:
|
To
his or her last known address as indicated on the Company’s books and
records.
|
|
|
The
Company:
|
To
the Company’s Chief Executive Officer at the address of the Company’s
principal office as set forth in the last filing by the Company with
the
SEC
|
or
to
such other address as any of them, by notice to the others, may designate from
time to time. Notice shall be deemed given (a) when personally delivered, (b)
the scheduled delivery date if sent by Federal Express or other overnight
courier service or (c) the fifth day after sent by certified mail.
IN
WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer as of the _____ day of February, 2006.
AERO
GROW
INTERNATIONAL, INC.
By:
___________________________
Name:
W.
Michael Bissonnette
Title:
CEO and President
Notice
of Exercise
To
Be
Executed by the Warrant Holder
In
Order
to Exercise Warrants
The
undersigned Warrant Holder hereby irrevocably elects to exercise _____________
Warrants represented by this Warrant, and to purchase thereunder,
_______________ full shares of Common Stock issuable upon the exercise of such
Warrants, by delivery of $___________ ($6.00 per share), and requests that
certificates for such shares of Common Stock shall be issued in the name of
PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(please
print or type name and address)
and
be
delivered to
(please
print or type name and address)
and
if
such number of Warrants shall not be all the Warrants evidenced by this Warrant,
that a new Warrant for the balance of such Warrants be registered in the name
of, and delivered to, the registered Warrant Holder at the address stated
above.
The
undersigned hereby represents and warrants to the Company that it is an
“Accredited Investor” within the meaning of Rule 501(c) of the Securities Act of
1933, as amended (the “Securities Act”), and is acquiring these securities for
its own account and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or selling
the same. The undersigned further represents that it does not have any contract,
agreement, understanding or arrangement with any person to sell, transfer or
grant the shares of Common Stock issuable under this Warrant. The undersigned
understands that the shares it will be receiving are “restricted securities”
under Federal securities laws inasmuch as they are being acquired from AERO
GROW
INTERNATIONAL, INC., in transactions not including any public offering and
that
under such laws, such shares may only be sold pursuant to an effective and
current registration statement under the Securities Act or an exemption from
the
registration requirements of the Securities Act and any other applicable
restrictions, in which event a legend or legends will be placed upon the
certificate(s) representing the Common Stock issuable under this Warrant
denoting such restrictions. The undersigned understands and acknowledges that
the Company will rely on the accuracy of these representations and warranties
in
issuing the securities underlying the Warrant.
Dated:
_______________
__________________________________
(Signature
of Registered Holder)
ASSIGNMENT
FORM
To
be
executed by the Warrant Holder
In
order
to Assign Warrants
FOR
VALUE
RECEIVED,____________________________________ hereby sell, assigns and transfer
unto
PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(Please
print or type name and address)
______________________
of the Warrants represented by this Warrant, and hereby irrevocably constitutes
and appoints ________________________ Attorney to transfer this Warrant on
the
books of the Company, with full power of substitution in the
premises.
Dated:______________________
___________________________________
(Signature
of Registered Holder)
_______________________________
(Signature
Guaranteed)
THE
SIGNATURE ON THE EXERCISE FORM OR THE ASSIGNMENT FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED
BY A
COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK
EXCHANGE, COLORADO STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK
EXCHANGE.
CERTIFICATION
OF STATUS OF TRANSFEREE
TO
BE EXECUTED BY THE TRANSFEREE OF THIS WARRANT
The
undersigned transferee hereby certifies to the registered holder of this Warrant
and to AERO GROW INTERNATIONAL, INC. that the transferee is an “accredited
investor” within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended.
Dated:_____________________
____________________________________
(Signature
of Transferee)
EXHIBIT
4.8
THIS
WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT AND THE WARRANT SHARES ISSUABLE UPON EXERCISE
OF
THIS WARRANT MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF
SUCH REGISTRATION OR PURSUANT TO AN EXEMPTION THEREFROM UNDER THE SECURITIES
ACT
AND SUCH STATE LAWS, SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY
TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. THIS
WARRANT AND THE COMPANY'S SUBSCRIPTION AGREEMENT WITH THE HOLDER SET FORTH
THE
COMPANY’S OBLIGATIONS TO REGISTER FOR RESALE THE WARRANT SHARES. A COPY OF SUCH
SUBSCRIPTION AGREEMENT IS AVAILABLE FOR INSPECTION AT THE COMPANY’S OFFICE.
THIS
WARRANT MAY NOT, IN ANY EVENT, BE TRANSFERRED TO ANY PERSON OR ENTITY THAT
IS
NOT AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501, PROMULGATED UNDER
THE
ACT.
__________
Warrants
Void
after 5:00 p.m., Colorado time on _______________, 2010
COMMON
STOCK
PURCHASE
WARRANT
OF
AEROGROW
INTERNATIONAL, INC.
AEROGROW
INTERNATIONAL, INC., a Nevada corporation (the “Company”), hereby certifies
that, for value received
,
______________
(the
“Warrant Holder”) is the owner of the number of common stock purchase warrants
(“Warrants”) specified above, each of which entitles the holder thereof to
purchase, at any time during the period commencing on the Commencement Date
(as
defined herein) and ending on the Expiration Date (as defined herein), one
fully
paid and non-assessable share of common stock, par value $.001 per share
(“Common Stock”), of the Company at a purchase price equal to the Exercise Price
(as defined in Section 1.2) in lawful money of the United States of America
in
cash, subject to adjustment as hereinafter provided. These Warrants are issued
pursuant to a certain Placement Agreement with Company relating to the placement
of Units of the Company, limited in aggregate principal amount to $3,000,000
of
notes included in said Units, issued or to be issued by the Company pursuant
to
a certain private placement memorandum dated June 6, 2005.
1.
WARRANT;
EXERCISE PRICE
.
1.1
Each
Warrant shall entitle the Warrant Holder the right to purchase one share
of
Common Stock of the Company (individually, a “Warrant Share” severally, the
“Warrant Shares”).
1.2
The
purchase price payable upon exercise of each Warrant (“Exercise Price”) shall be
$6.00 per share, on a net issuance or cashless basis. The Exercise Price
and
number of Warrant Shares purchasable pursuant to each Warrant are subject
to
adjustment as provided in Section 8.
2.
EXERCISE
OF WARRANT; EXPIRATION DATE
.
2.1
This
Warrant is exercisable during the period commencing on the first anniversary
of
___________, 2005
[the
closing date]
(“Commencement Date”) and ending on the Expiration Date (as defined below in
Section 2.5), in whole or from time to time in part, at the option of the
Warrant Holder, upon surrender of this Warrant to the Company together with
a
duly completed form of exercise attached hereto and payment of an amount
equal
to the then applicable Exercise Price multiplied by the number of Warrant
Shares
then being purchased upon such exercise.
2.2
Each
exercise of this Warrant shall be deemed to have been effected immediately
prior
to the close of business on the day on which this Warrant shall have been
surrendered to the Company as provided in Section 2.1. At such time, the
person
or persons in whose name or names any certificates for Warrant Shares shall
be
issuable upon such exercise as provided in subsection 2.3 below shall be
deemed
to have become the holder or holders of record of the Warrant Shares represented
by such certificates.
2.3
Within
three business days after the exercise of the purchase right represented
by this
Warrant, the Company at its expense will use its best efforts to cause to
be
issued in the name of, and delivered to, the Warrant Holder, or, subject
to the
terms and conditions hereof, to such other individual or entity as such Warrant
Holder (upon payment by such Warrant Holder of any applicable transfer taxes)
may direct:
(a)
a
certificate or certificates for the number of full Warrant Shares to which
such
Warrant Holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which such Warrant Holder would otherwise be entitled,
cash
in an amount determined pursuant to Section 2.4 hereof, and
(b)
in
case
such exercise is in part only, a new Warrant or Warrants (dated the date
hereof)
of like tenor, stating on the face or faces thereof the number of shares
currently stated on the face of this Warrant minus the number of such shares
purchased by the Warrant Holder upon such exercise as provided in subsection
2.1
(prior to any adjustments made thereto pursuant to the provisions of this
Warrant).
2.4
The
Company shall not be required upon the exercise of this Warrant to issue
any
fractional shares, but shall make an adjustment thereof in cash on the basis
of
the “last sale price” (as defined below) of the Company's Common Stock on the
trading day immediately prior to the date of exercise. For purposes of this
Section 2.4, “last sale price” shall mean (i) if the Common Stock is listed on a
national securities exchange or quoted on the Nasdaq National Market, Nasdaq
SmallCap Market or NASD OTC Bulletin Board (or successor such as the Bulletin
Board Exchange), the last sale price of the Common Stock in the principal
trading market for the Common Stock as reported by the exchange, Nasdaq or
the
NASD, as the case may be; (ii) if the Common Stock is not listed on a national
securities exchange or quoted on the Nasdaq National Market, Nasdaq SmallCap
Market or the NASD OTC Bulletin Board (or successor such as the Bulletin
Board
Exchange), but is traded in the residual over-the-counter market, the closing
bid price for the Common Stock on the last trading day preceding the date
in
question for which such quotations are reported by the Pink Sheets, LLC or
similar publisher of such quotations; and (iii) if the fair market value
of the
Common Stock cannot be determined pursuant to clause (i) or (ii) above, such
price as the Board of Directors of the Company shall determine, in good
faith.
2.5
The
term
“Expiration Date” shall mean either the date on which the Registered Offering is
declared effective under the Securities Act if such event occurs prior to
the
first anniversary date of the Closing Date or, if the Registered Offering
is not
declared effective by said date, then on 5:00 p.m., Colorado time on
____________, 2010
[five-year
anniversary of the closing date]
,
or if
such date shall in the State of Colorado be a holiday or a day on which banks
are authorized to close, then 5:00 p.m., Colorado time the next following
day
which in the State of Colorado is not a holiday or a day on which banks are
authorized to close or in the event of any merger, consolidation, or sale
of
substantially all the assets of the Company as, an entirety, resulting in
any
distribution to the Company’s stockholders, prior to the Expiration Date, the
Warrant Holder shall have the right to exercise this Warrant commencing at
such
time through the Expiration Date into the kind and amount of shares of stock
and
other securities and property (including cash) receivable by a holder of
the
number of shares of Common Stock into which this Warrant might have been
exercisable immediately prior thereto.
2.6
The
Company has engaged Keating Securities, LLC (“Keating”), on an exclusive basis,
as its agent for the solicitation of this Warrant. In each instance in which
a
Warrant is exercised through the solicitation by Keating, the Company will
pay
from the proceeds received upon exercise of the Warrant, a fee of 5% of the
purchase price to Keating. Notwithstanding the foregoing, no fee shall be
payable to Keating under this Section 2.6 in the event the Registered Offering
is declared effective under the Securities Act prior the first anniversary
of
the final closing of the Unit offering to which this issuance relates. The
provisions of this Section 2.6 may not be modified, amended or deleted without
the prior written consent of Keating.
2.7
This
Warrant is redeemable by the Company, in whole and not in part, on fifteen
(15)
days prior written notice at a redemption price of $0.0001 per share of Common
Stock underlying this Warrant, at any time commencing the date of first issuance
of this Warrant, provided an effective registration statement is in effect
covering the Warrant Shares, and further provided that on all twenty of the
trading days ending on the third day prior to the day on which the redemption
notice is given, (i) the “last sale price,” as defined in Section 2.4 hereof,
has been at least $7.50 per share of Common Stock, as adjusted for the events
set forth in Section 8 hereof, and (ii) the average daily trading volume
(as
adjusted to exclude the highest and lowest volume trading days for the period)
exceeds 50,000 shares per day. The redemption notice shall be mailed to the
Warrant Holder at its, his or her address appearing on the books and records
of
the Company. Warrant Holders will have the right to exercise this Warrant
until
the close of business on the date fixed for redemption.
3.
REGISTRATION
AND TRANSFER ON COMPANY BOOKS
.
3.1
The
Company (or an agent of the Company) will maintain a register containing
the
names and addresses of the Warrant Holders. Any Warrant Holder may change
its,
his or her address as shown on the warrant register by written notice to
the
Company requesting such change.
3.2
The
Company shall register upon its books any transfer of a Warrant upon surrender
of same as provided in Section 5.
4.
RESERVATION
OF SHARES
.
The
Company will at all times reserve and keep available, solely for issuance
and
delivery upon the exercise of this Warrant, such Warrant Shares and other
stock,
securities and property, as from time to time shall be issuable upon the
exercise of this Warrant.
As
long
as the Warrant shall be outstanding, the Company shall use its best efforts
to
cause all Warrant Shares issuable upon exercise of the Warrants to be listed
(subject to official notice of issuance) on each securities exchange (or,
if
applicable on Nasdaq or the OTC Bulletin Board or any successor trading market)
on which the Common Stock is then listed and/or quoted.
5.
EXCHANGE,
TRANSFER, ASSIGNMENT OR LOSS OR MUTILATION OF WARRANTS
.
This
Warrant is exchangeable, without expense, at the option of the Warrant Holder,
upon presentation and surrender hereof to the Company for other warrants
of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder.
Subject to the terms of Section 6, upon surrender of this Warrant to the
Company
at its principal office or at the office of its transfer agent, if any, with
the
Assignment Form annexed hereto duly executed and funds sufficient to pay
any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment
and
this Warrant shall be promptly canceled. This Warrant may be divided or combined
with other warrants which carry the same rights upon presentation hereof
at the
principal office of the Company together with a written notice specifying
the
names and denominations in which new Warrants are to be issued and signed
by the
Warrant Holder hereof. The term “Warrant” as used herein includes any Warrants
into which this Warrant may be divided or exchanged. Upon receipt by the
Company
of reasonable evidence of the ownership of and the loss, theft, destruction
or
mutilation of this Warrant and, in the case of loss, theft or destruction,
of
indemnity reasonably satisfactory to the Company, or, in the case of mutilation,
upon surrender and cancellation of the mutilated Warrant, the Company shall
execute and deliver in lieu thereof a new Warrant of like tenor and date
representing an equal number of Warrants.
6.
LIMITATION
ON EXERCISE AND SALES
.
Each
holder of this Warrant acknowledges that this Warrant and the Warrant Shares
have not been registered under the Securities Act, as of the date of issuance
hereof and agrees not to sell, pledge, distribute, offer for sale, transfer
or
otherwise dispose of this Warrant, or any Warrant Shares issued upon its
exercise, in the absence of: (i) an effective registration statement under
the
Securities Act as to this Warrant or such Warrant Shares, as the case may
be,
under any applicable Blue Sky or state securities law then in effect, or
(ii) an
opinion of counsel, satisfactory to the Company, that such registration and
qualification are not required. In addition, this Warrant only may be
transferred to a transferee who certifies in writing to the Warrant Holder
and
to the Company that such transferee is an “accredited investor” within the
meaning of Rule 501(a) promulgated by the Commission under the Securities
Act.
The
Company shall be under no obligation to issue the shares covered by such
exercise unless and until the Warrant Holder shall have executed the form
of
exercise annexed hereto that states that at the time of such exercise that
it is
then an “accredited investor” within the meaning of Rule 501(c) promulgated by
the Commission under the Securities Act, is acquiring such shares for its
own
account, and will not transfer the Warrant Shares unless pursuant to an
effective and current registration statement under the Securities Act or
an
exemption from the registration requirements of the Securities Act and any
other
applicable restrictions, in which event the Warrant Holder shall be bound
by the
provisions of a legend or legends to such effect that shall be endorsed upon
the
certificate(s) representing the Warrant Shares issued pursuant to such exercise.
In such event, the Warrant Shares issued upon exercise hereof shall be imprinted
with a legend in substantially the following form:
“This
security has been acquired for investment and has not been registered under
the
Securities Act of 1933, as amended, or applicable state securities laws.
This
security may not be sold, pledged or otherwise transferred in the absence
of
such registration or pursuant to an exemption therefrom under said Act and
such
laws, supported by an opinion of counsel, reasonably satisfactory to the
Company
and its counsel, that such registration is not required.”
7.
REGISTRATION
RIGHTS OF WARRANT HOLDER
.
The
Company has agreed to file and to use its best efforts to have declared
effective a registration statement with the Commission to register for resale
the Warrant Shares purchasable under this Warrant on a registration statement
(the “Registration Statement”), in accordance with and subject to the terms and
conditions of the registration rights discussed in Section 8 of the Subscription
Agreement signed by the original Holder of this Warrant and accepted by the
Company in connection with the offering to which these Warrants relate. These
registration rights shall inure to the benefit of the transferees of this
Warrant and the Warrant Shares.
8.
ADJUSTMENT
OF PURCHASE PRICE AND NUMBER OF SHARES DELIVERABLE
.
The
Exercise Price and the number of Warrant Shares purchasable pursuant to each
Warrant shall be subject to adjustment from time to time as hereinafter set
forth in this Section 8:
(a)
In
case,
prior to the expiration of this Warrant by exercise or by its terms, the
Company
shall issue any shares of its Common Stock as a stock dividend or subdivide
the
number of outstanding shares of its Common Stock into a greater number of
shares, then in either of such cases, the then applicable Exercise Price
per
Warrant Share purchasable pursuant to this Warrant in effect at the time
of such
action shall be proportionately reduced and the number of Warrant Shares
at that
time purchasable pursuant to this Warrant shall be proportionately increased;
and conversely, in the event the Company shall reduce the number of outstanding
shares of Common Stock by combining such shares into a smaller number of
shares,
then, in such case, the then applicable Exercise Price per Warrant Share
purchasable pursuant to this Warrant in effect at the time of such action
shall
be proportionately increased and the number of Warrant Shares at that time
purchasable pursuant to this Warrant shall be proportionately decreased.
If the
Company shall, at any time during the life of this Warrant, declare a dividend
payable in cash on its Common Stock and shall at substantially the same time
offer to its stockholders a right to purchase new Common Stock from the proceeds
of such dividend or for an amount substantially equal to the dividend, all
Common Stock so issued shall, for the purpose of this Warrant, be deemed
to have
been issued as a stock dividend. Any dividend paid or distributed upon the
Common Stock in stock of any other class of securities convertible into shares
of Common Stock shall be treated as a dividend paid in Common Stock to the
extent that shares of Common Stock are issuable upon conversion
thereof.
(b)
In
case,
prior to the expiration of this Warrant by exercise or by its terms, the
Company
shall be recapitalized by reclassifying its outstanding Common Stock, (other
than a change in par value to no par value), or the corporation or a successor
corporation shall consolidate or merge with or convey all or substantially
all
of its or of any successor corporation’s property and assets to any other
corporation or corporations (any such other corporations being included within
the meaning of the term “successor corporation” hereinbefore used in the event
of any consolidation or merger of any such other corporation with, or the
sale
of all or substantially all of the property of any such other corporation
to,
another corporation or corporations), then, as a condition of such
recapitalization, consolidation, merger or conveyance, lawful and adequate
provision shall be made whereby the holder of this Warrant shall thereafter
have
the right to purchase, upon the basis and on the terms and conditions specified
in this Warrant, in lieu of the Warrant Shares theretofore purchasable upon
the
exercise of this Warrant, such shares of stock, securities or assets as may
be
issued or payable with respect to, or in exchange for the number of Warrant
Shares theretofore purchasable upon the exercise of this Warrant, had such
recapitalization, consolidation, merger, or conveyance not taken place; and
in
any such event, the rights of the Warrant Holder to any adjustment in the
number
of Warrant Shares purchasable upon the exercise of this Warrant, as hereinbefore
provided, shall continue and be preserved in respect of any stock which the
Warrant Holder becomes entitled to purchase.
(c)
In
case
the Company at any time while this Warrant shall remain unexpired and
unexercised shall sell all or substantially all of its property or dissolve,
liquidate, or wind up its affairs, lawful provision shall be made as part
of the
terms of any such sale, dissolution, liquidation or winding up, so that the
holder of this Warrant may thereafter receive upon exercise hereof in lieu
of
each Warrant Share that it would have been entitled to receive, the same
kind
and amount of any securities or assets as may be issuable, distributable
or
payable upon any such sale, dissolution, liquidation or winding up with respect
to each share of Common Stock of the Company, provided, however, that in
any
case of any such sale or of dissolution, liquidation or winding up, the right
to
exercise this Warrant shall terminate on a date fixed by the Company; such
date
so fixed to be not earlier than 5:00 p.m., Colorado time, on the forty-fifth
day
next succeeding the date on which notice of such termination of the right
to
exercise this Warrant has been given by mail to the registered holder of
this
Warrant at its address as it appears on the books of the Company.
(d)
No
adjustment in the per share Exercise Price shall be required unless such
adjustment would require an increase or decrease in the Exercise Price by
at
least $0.01; provided, however, that any adjustments that by reason of this
subsection are not required to be made shall be carried forward and taken
into
account in any subsequent adjustment. All calculations under this Section
8
shall be made to the nearest cent or to the nearest 1/100th of a share, as
the
case may be.
(e)
The
Company will not, by amendment of its Certificate of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek
to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company but will at all times in good faith assist
in
the carrying out of all the provisions of this Section 8 and in the taking
of
all such actions as may be necessary or appropriate in order to protect against
impairment of the rights of the Warrant Holder to adjustments in the Exercise
Price.
(f)
Upon
the
happening of any event requiring an adjustment of the Exercise Price hereunder,
the Company shall give written notice thereof to the Warrant Holder stating
the
adjusted Exercise Price and the adjusted number of Warrant Shares resulting
from
such event and setting forth in reasonable detail the method of calculation
and
the facts upon which such calculation is based.
9.
VOLUNTARY
ADJUSTMENT BY THE COMPANY
.
The
Company may, at its option, at any time during the term of the Warrants,
reduce
the then current Exercise Price to any amount deemed appropriate by the Board
of
Directors of the Company and/or extend the date of the expiration of the
Warrants.
10.
RIGHTS
OF THE HOLDER
.
The
Warrant Holder shall not, by virtue hereof, be entitled to any rights of
a
stockholder in the Company, either at law or equity, and the rights of the
Warrant Holder are limited to those expressed in the Warrant and are not
enforceable against the Company except to the extent set forth herein.
11.
NOTICES
OF RECORD DATE
.
In
case:
(a)
the
Company shall take a record of the holders of its Common Stock (or other
stock
or securities at the time deliverable upon the exercise of this Warrant)
for the
purpose of entitling or enabling them to receive any dividend or other
distribution, or to receive any right to subscribe for or purchase any shares
of
any class or any other securities, or to receive any other right, or
(b)
of
any
capital reorganization of the Company, any reclassification of the capital
stock
of the Company, any consolidation or merger of the Company with or into another
corporation (other than a consolidation or merger in which the Company is
the
surviving entity), or any transfer of all or substantially all of the assets
of
the Company, or
(c)
of
the
voluntary or involuntary dissolution, liquidation or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed
to the
Warrant Holder a notice specifying, as the case may be, (i) the date on which
a
record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right,
or
(ii) the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is
to
take place, and the time, if any is to be fixed, as of which the holders
of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up.
Such
notice shall be mailed at least twenty days prior to the record date or
effective date for the event specified in such notice, provided that the
failure
to mail such notice shall not affect the legality or validity of any such
action.
12.
SUCCESSORS
.
The
rights and obligations of the parties to this Warrant will inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
successors, assigns, pledgees, transferees and purchasers. Without limiting
the
foregoing, the registration rights referred to in Section 7 of this Warrant
shall inure to the benefit of the Warrant Holder and all the Warrant Holder’s
successors, heirs, pledgees, assignees, transferees and purchasers of this
Warrant and the Warrant Shares.
13.
CHANGE
OR WAIVER
.
Any
term of this Warrant may be changed or waived only by an instrument in writing
signed by the party against whom enforcement of the change or waiver is sought.
14.
HEADINGS
.
The
headings in this Warrant are for purposes of reference only and shall not
limit
or otherwise affect the meaning of any provision of this Warrant.
15.
GOVERNING
LAW
.
This
Warrant shall be governed by and construed in accordance with the laws of
the
State of Colorado as such laws are applied to contracts made and to be fully
performed entirely within that state between residents of that state except
to
the extent the laws of the State of Nevada mandatorily apply because the
Company
is incorporated in the State of Nevada.
16.
JURISDICTION
AND VENUE
.
The
Company (i) agrees that any legal suit, action or proceeding arising out
of or
relating to this Warrant shall be instituted exclusively in the District
Court,
City and County of Denver or in the United States District Court for the
District of Colorado, (ii) waives any objection to the venue of any such
suit,
action or proceeding and the right to assert that such forum is not a convenient
forum, and (iii) irrevocably consents to the jurisdiction of the District
Court,
City and County of Denver, and the United States District Court for the District
of Colorado in any such suit, action or proceeding, and the Company further
agrees to accept and acknowledge service or any and all process that may
be
served in any such suit, action or proceeding in the District Court, City
and
County of Denver or in the United States District Court for the District
of
Colorado in person or by certified mail addressed as provided in the following
Section.
17.
MAILING
OF NOTICES, ETC
.
All
notices and other communications under this Warrant (except payment) shall
be in
writing and shall be sufficiently given if delivered to the addressees in
person, by Federal Express or similar overnight courier service, or if mailed,
postage prepaid, by certified mail, return receipt requested, as
follows:
|
|
Registered
Holder:
|
To
his or her last known address as indicated on the Company’s books and
records.
|
|
|
|
|
|
|
The
Company:
|
To
the Company’s Chief Executive Officer at the address of the Company’s
principal office as set forth in the last filing by the Company
with the
SEC
|
or
to
such other address as any of them, by notice to the others, may designate
from
time to time. Notice shall be deemed given (a) when personally delivered,
(b)
the scheduled delivery date if sent by Federal Express or other overnight
courier service or (c) the fifth day after sent by certified mail.
IN
WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly
authorized officer as of the _____ day of _______________, 2005.
|
|
|
|
|
|
AEROGROW
INTERNATIONAL, INC.
|
|
|
|
|
|
By:
|
|
|
|
Name:
W. Michael Bissonnette
Title:
CEO and President
|
Notice
of Exercise
To
Be
Executed by the Warrant Holder
In
Order
to Exercise Warrants
The
undersigned Warrant Holder hereby irrevocably elects to exercise ______ Warrants
represented by this Warrant, and to purchase the shares of Common Stock issuable
upon the exercise of such Warrants, and requests that certificates for such
shares of Common Stock shall be issued in the name of
PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(please
print or type name and address)
and
be
delivered to
(please
print or type name and address)
and
if
such number of Warrants shall not be all the Warrants evidenced by this Warrant,
that a new Warrant for the balance of such Warrants be registered in the
name
of, and delivered to, the registered Warrant Holder at the address stated
above.
The
undersigned hereby represents and warrants to the Company that it is an
“Accredited Investor” within the meaning of Rule 501(c) of the Securities Act of
1933, as amended (the “Securities Act”), and is acquiring these securities for
its own account and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or selling
the same. The undersigned further represents that it does not have any contract,
agreement, understanding or arrangement with any person to sell, transfer
or
grant the shares of Common Stock issuable under this Warrant. The undersigned
understands that the shares it will be receiving are “restricted securities”
under Federal securities laws inasmuch as they are being acquired from AEROGROW
INTERNATIONAL, INC., in transactions not including any public offering and
that
under such laws, such shares may only be sold pursuant to an effective and
current registration statement under the Securities Act or an exemption from
the
registration requirements of the Securities Act and any other applicable
restrictions, in which event a legend or legends will be placed upon the
certificate(s) representing the Common Stock issuable under this Warrant
denoting such restrictions. The undersigned understands and acknowledges
that
the Company will rely on the accuracy of these representations and warranties
in
issuing the securities underlying the Warrant.
|
Dated:
_________________
|
|
|
|
|
|
(Signature
of Registered Holder)
|
ASSIGNMENT
FORM
To
be
executed by the Warrant Holder
In
order
to Assign Warrants
FOR
VALUE
RECEIVED,____________________________________ hereby sell, assigns and transfer
unto
PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(Please
print or type name and address)
______________________
of the Warrants represented by this Warrant, and hereby irrevocably constitutes
and appoints ________________________ Attorney to transfer this Warrant on
the
books of the Company, with full power of substitution in the
premises.
|
Dated:
______________________
|
|
|
|
|
|
(Signature
of Registered Holder)
|
|
|
|
|
|
|
|
|
|
|
|
(Signature
Guaranteed)
|
THE
SIGNATURE ON THE EXERCISE FORM OR THE ASSIGNMENT FORM MUST CORRESPOND TO
THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED
BY A
COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK
EXCHANGE, COLORADO STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK
EXCHANGE.
CERTIFICATION
OF STATUS OF TRANSFEREE
TO
BE EXECUTED BY THE TRANSFEREE OF THIS WARRANT
The
undersigned transferee hereby certifies to the registered holder of this
Warrant
and to AEROGROW INTERNATIONAL, INC. that the transferee is an “accredited
investor” within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended.
|
Dated:
_____________________
|
|
|
|
|
|
(Signature
of Transferee)
|
THIS
WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT AND THE WARRANT SHARES ISSUABLE UPON EXERCISE
OF
THIS WARRANT MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF
SUCH REGISTRATION OR PURSUANT TO AN EXEMPTION THEREFROM UNDER THE SECURITIES
ACT
AND SUCH STATE LAWS, SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY
TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. THIS
WARRANT AND THE COMPANY'S SUBSCRIPTION AGREEMENT WITH THE HOLDER SET FORTH
THE
COMPANY’S OBLIGATIONS TO REGISTER FOR RESALE THE WARRANT SHARES. A COPY OF SUCH
SUBSCRIPTION AGREEMENT IS AVAILABLE FOR INSPECTION AT THE COMPANY’S OFFICE.
THIS
WARRANT MAY NOT, IN ANY EVENT, BE TRANSFERRED TO ANY PERSON OR ENTITY THAT
IS
NOT AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501, PROMULGATED UNDER
THE
ACT.
___________
Warrants
Void
after 5:00 p.m., Colorado time on February __, 2011
COMMON
STOCK
PURCHASE
WARRANT
OF
AERO
GROW
INTERNATIONAL, INC.
AERO
GROW
INTERNATIONAL, INC., a Nevada corporation (the “Company”), hereby certifies
that, for value received
,
____________________
(the
“Warrant Holder”) is the owner of the number of common stock purchase warrants
(“Warrants”) specified above, each of which entitles the holder thereof to
purchase, at any time during the period commencing on the Commencement Date
(as
defined herein) and ending on the Expiration Date (as defined herein), one
fully
paid and non-assessable share of common stock, par value $.001 per share
(“Common Stock”), of the Company at a purchase price equal to the Exercise Price
(as defined in Section 1.2) in lawful money of the United States of America
in
cash, subject to adjustment as hereinafter provided. These Warrants are part
being issued to the Warrant Holder as placement agent warrants as part of the
duly authorized issuance of up to 2,400,000 shares of Common Stock and attached
Warrants to purchase shares of Common Stock, issued or to be issued by the
Company as part of a certain private offering (“Offering”) pursuant a private
placement memorandum dated February 6, 2006, as amended or
supplemented.
1.
WARRANT;
EXERCISE PRICE
.
1.1
Each
Warrant shall entitle the Warrant Holder the right to purchase one share of
Common Stock of the Company (individually, a “Warrant Share” severally, the
“Warrant Shares”).
1.2
The
purchase price payable upon exercise of each Warrant (“Exercise Price”) shall be
$6.25. The Exercise Price and number of Warrant Shares purchasable pursuant
to
each Warrant are subject to adjustment as provided in Section 8.
2.
EXERCISE
OF WARRANT; EXPIRATION DATE
.
2.1
This
Warrant is exercisable during the period commencing on February ___, 2006
(“Commencement Date”) and ending on the Expiration Date (as defined below in
Section 2.5), in whole or from time to time in part, at the option of the
Warrant Holder, upon surrender of this Warrant to the Company together with
a
duly completed form of exercise attached hereto and payment of an amount equal
to the then applicable Exercise Price multiplied by the number of Warrant Shares
then being purchased upon such exercise.
2.2
Notwithstanding
any provisions herein to the contrary, if the “last sale price” (as defined in
Section 2.5 below) of the Common Stock on the trading day immediately prior
to
the date of exercise is greater than the Exercise Price, in lieu of exercising
this Warrant for cash, the Warrant Holder may elect to receive shares of Common
Stock equal to the value (as determined by the formula below) of this Warrant
(or the portion thereof being canceled) by surrender of this Warrant to the
Company, together with a duly completed and executed form of exercise attached
hereto and notice of such election, in which event the Company shall issue
to
the Warrant Holder a number of shares of Common Stock computed using the
following formula:
X
=
Y
(A-B)
A
|
Where
|
X
=
|
the
number of shares of Common Stock to be issued to the Warrant
Holder
|
|
|
Y
=
|
the
total number of shares of Common Stock purchasable under the Warrant
or,
if only a portion of the Warrant is being exercised, the portion
of the
Warrant being canceled (at the date of such
calculation)
|
|
|
A
=
|
the
last sale price of one share of the Company’s Common Stock (on the trading
day immediately prior to the date of exercise)
|
|
|
B
=
|
Exercise
Price (as adjusted to the date of such
calculation)
|
2.3
Each
exercise of this Warrant shall be deemed to have been effected immediately
prior
to the close of business on the day on which this Warrant shall have been
surrendered to the Company as provided in Section 2.1. At such time, the person
or persons in whose name or names any certificates for Warrant Shares shall
be
issuable upon such exercise as provided in subsection 2.4 below shall be deemed
to have become the holder or holders of record of the Warrant Shares represented
by such certificates.
2.4
Within
three business days after the exercise of the purchase right represented by
this
Warrant, the Company at its expense will use its best efforts to cause to be
issued in the name of, and delivered to, the Warrant Holder, or, subject to
the
terms and conditions hereof, to such other individual or entity as such Warrant
Holder (upon payment by such Warrant Holder of any applicable transfer taxes)
may direct:
(a)
a
certificate or certificates for the number of full Warrant Shares to which
such
Warrant Holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which such Warrant Holder would otherwise be entitled,
cash
in an amount determined pursuant to Section 2.4 hereof, and
(b)
in
case
such exercise is in part only, a new Warrant or Warrants (dated the date hereof)
of like tenor, stating on the face or faces thereof the number of shares
currently stated on the face of this Warrant minus the number of such shares
purchased by the Warrant Holder upon such exercise as provided in subsection
2.1
(prior to any adjustments made thereto pursuant to the provisions of this
Warrant).
2.5
The
Company shall not be required upon the exercise of this Warrant to issue any
fractional shares, but shall make an adjustment thereof in cash on the basis
of
the “last sale price” (as defined below) of the Company's Common Stock on the
trading day immediately prior to the date of exercise. For purposes of this
Section 2.5, “last sale price” shall mean (i) if the Common Stock is listed on a
national securities exchange or quoted on the Nasdaq National Market, Nasdaq
Capital Markets or NASD OTC Bulletin Board (or successor such as the Bulletin
Board Exchange), the last sale price of the Common Stock in the principal
trading market for the Common Stock as reported by the exchange, Nasdaq or
the
NASD, as the case may be; (ii) if the Common Stock is not listed on a national
securities exchange or quoted on the Nasdaq National Market, Nasdaq Capital
Markets or the NASD OTC Bulletin Board (or successor such as the Bulletin Board
Exchange), but is traded in the residual over-the-counter market, the closing
bid price for the Common Stock on the last trading day preceding the date in
question for which such quotations are reported by the Pink Sheets, LLC or
similar publisher of such quotations; and (iii) if the fair market value of
the
Common Stock cannot be determined pursuant to clause (i) or (ii) above, such
price as the Board of Directors of the Company shall determine, in good faith.
2.6
The
term
“Expiration Date” shall mean 5:00 p.m., Colorado time on February ___, 2011, or
if such date shall in the State of Colorado be a holiday or a day on which
banks
are authorized to close, then 5:00 p.m., Colorado time the next following day
which in the State of Colorado is not a holiday or a day on which banks are
authorized to close or in the event of any merger, consolidation, or sale of
substantially all the assets of the Company as, an entirety, resulting in any
distribution to the Company’s stockholders, prior to the Expiration Date, the
Warrant Holder shall have the right to exercise this Warrant commencing at
such
time through the Expiration Date into the kind and amount of shares of stock
and
other securities and property (including cash) receivable by a holder of the
number of shares of Common Stock into which this Warrant might have been
exercisable immediately prior thereto.
2.7
This
Warrant is not redeemable by the Company, in whole and not in part.
3.
REGISTRATION
AND TRANSFER ON COMPANY BOOKS
.
3.1
The
Company (or an agent of the Company) will maintain a register containing the
names and addresses of the Warrant Holders. Any Warrant Holder may change its,
his or her address as shown on the warrant register by written notice to the
Company requesting such change.
3.2
The
Company shall register upon its books any transfer of a Warrant upon surrender
of same as provided in Section 5.
4.
RESERVATION
OF SHARES
.
The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of this Warrant, such Warrant Shares and other stock,
securities and property, as from time to time shall be issuable upon the
exercise of this Warrant.
As
long
as the Warrant shall be outstanding, the Company shall use its best efforts
to
cause all Warrant Shares issuable upon exercise of the Warrants to be listed
(subject to official notice of issuance) on each securities exchange (or, if
applicable on Nasdaq or the OTC Bulletin Board or any successor trading market)
on which the Common Stock is then listed and/or quoted.
5.
EXCHANGE,
TRANSFER, ASSIGNMENT OR LOSS OR MUTILATION OF WARRANTS
.
This
Warrant is exchangeable, without expense, at the option of the Warrant Holder,
upon presentation and surrender hereof to the Company for other warrants of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder.
Subject to the terms of Section 6, upon surrender of this Warrant to the Company
at its principal office or at the office of its transfer agent, if any, with
the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment
and
this Warrant shall be promptly canceled. This Warrant may be divided or combined
with other warrants which carry the same rights upon presentation hereof at
the
principal office of the Company together with a written notice specifying the
names and denominations in which new Warrants are to be issued and signed by
the
Warrant Holder hereof. The term “Warrant” as used herein includes any Warrants
into which this Warrant may be divided or exchanged. Upon receipt by the Company
of reasonable evidence of the ownership of and the loss, theft, destruction
or
mutilation of this Warrant and, in the case of loss, theft or destruction,
of
indemnity reasonably satisfactory to the Company, or, in the case of mutilation,
upon surrender and cancellation of the mutilated Warrant, the Company shall
execute and deliver in lieu thereof a new Warrant of like tenor and date
representing an equal number of Warrants.
6.
LIMITATION
ON EXERCISE AND SALES
.
Each
holder of this Warrant acknowledges that this Warrant and the Warrant Shares
have not been registered under the Securities Act, as of the date of issuance
hereof and agrees not to sell, pledge, distribute, offer for sale, transfer
or
otherwise dispose of this Warrant, or any Warrant Shares issued upon its
exercise, in the absence of: (i) an effective registration statement under
the
Securities Act as to this Warrant or such Warrant Shares, as the case may be,
under any applicable Blue Sky or state securities law then in effect, or (ii)
an
opinion of counsel, satisfactory to the Company, that such registration and
qualification are not required. In addition, this Warrant only may be
transferred to a transferee who certifies in writing to the Warrant Holder
and
to the Company that such transferee is an “accredited investor” within the
meaning of Rule 501(a) promulgated by the Commission under the Securities
Act.
The
Company shall be under no obligation to issue the shares covered by such
exercise unless and until the Warrant Holder shall have executed the form of
exercise annexed hereto that states that at the time of such exercise that
it is
then an “accredited investor” within the meaning of Rule 501(c) promulgated by
the Commission under the Securities Act, is acquiring such shares for its own
account, and will not transfer the Warrant Shares unless pursuant to an
effective and current registration statement under the Securities Act or an
exemption from the registration requirements of the Securities Act and any
other
applicable restrictions, in which event the Warrant Holder shall be bound by
the
provisions of a legend or legends to such effect that shall be endorsed upon
the
certificate(s) representing the Warrant Shares issued pursuant to such exercise.
In such event, the Warrant Shares issued upon exercise hereof shall be imprinted
with a legend in substantially the following form:
“This
security has been acquired for investment and has not been registered under
the
Securities Act of 1933, as amended, or applicable state securities laws. This
security may not be sold, pledged or otherwise transferred in the absence of
such registration or pursuant to an exemption therefrom under said Act and
such
laws, supported by an opinion of counsel, reasonably satisfactory to the Company
and its counsel, that such registration is not required.”
7.
REGISTRATION
RIGHTS OF WARRANT HOLDER
.
The
Company has agreed to file and to use its best efforts to have declared
effective a registration statement with the Commission to register for resale
the Warrant Shares purchasable under this Warrant on a registration statement
(the “Registration Statement”), on the same terms and conditions of the
registration rights granted to investors in the Offering as set forth in Section
10 of the Subscription Agreement signed by the investors and accepted by the
Company in connection with the Offering. These registration rights shall inure
to the benefit of the transferees of this Warrant and the Warrant
Shares.
8.
ADJUSTMENT
OF PURCHASE PRICE AND NUMBER OF SHARES DELIVERABLE
.
The
Exercise Price and the number of Warrant Shares purchasable pursuant to each
Warrant shall be subject to adjustment from time to time as hereinafter set
forth in this Section 8:
(a)
In
case,
prior to the expiration of this Warrant by exercise or by its terms, the Company
shall issue any shares of its Common Stock as a stock dividend or subdivide
the
number of outstanding shares of its Common Stock into a greater number of
shares, then in either of such cases, the then applicable Exercise Price per
Warrant Share purchasable pursuant to this Warrant in effect at the time of
such
action shall be proportionately reduced and the number of Warrant Shares at
that
time purchasable pursuant to this Warrant shall be proportionately increased;
and conversely, in the event the Company shall reduce the number of outstanding
shares of Common Stock by combining such shares into a smaller number of shares,
then, in such case, the then applicable Exercise Price per Warrant Share
purchasable pursuant to this Warrant in effect at the time of such action shall
be proportionately increased and the number of Warrant Shares at that time
purchasable pursuant to this Warrant shall be proportionately decreased. If
the
Company shall, at any time during the life of this Warrant, declare a dividend
payable in cash on its Common Stock and shall at substantially the same time
offer to its stockholders a right to purchase new Common Stock from the proceeds
of such dividend or for an amount substantially equal to the dividend, all
Common Stock so issued shall, for the purpose of this Warrant, be deemed to
have
been issued as a stock dividend. Any dividend paid or distributed upon the
Common Stock in stock of any other class of securities convertible into shares
of Common Stock shall be treated as a dividend paid in Common Stock to the
extent that shares of Common Stock are issuable upon conversion
thereof.
(b)
In
case,
prior to the expiration of this Warrant by exercise or by its terms, the Company
shall be recapitalized by reclassifying its outstanding Common Stock, (other
than a change in par value to no par value), or the corporation or a successor
corporation shall consolidate or merge with or convey all or substantially
all
of its or of any successor corporation’s property and assets to any other
corporation or corporations (any such other corporations being included within
the meaning of the term “successor corporation” hereinbefore used in the event
of any consolidation or merger of any such other corporation with, or the sale
of all or substantially all of the property of any such other corporation to,
another corporation or corporations), then, as a condition of such
recapitalization, consolidation, merger or conveyance, lawful and adequate
provision shall be made whereby the holder of this Warrant shall thereafter
have
the right to purchase, upon the basis and on the terms and conditions specified
in this Warrant, in lieu of the Warrant Shares theretofore purchasable upon
the
exercise of this Warrant, such shares of stock, securities or assets as may
be
issued or payable with respect to, or in exchange for the number of Warrant
Shares theretofore purchasable upon the exercise of this Warrant, had such
recapitalization, consolidation, merger, or conveyance not taken place; and
in
any such event, the rights of the Warrant Holder to any adjustment in the number
of Warrant Shares purchasable upon the exercise of this Warrant, as hereinbefore
provided, shall continue and be preserved in respect of any stock which the
Warrant Holder becomes entitled to purchase.
(c)
In
case
the Company at any time while this Warrant shall remain unexpired and
unexercised shall sell all or substantially all of its property or dissolve,
liquidate, or wind up its affairs, lawful provision shall be made as part of
the
terms of any such sale, dissolution, liquidation or winding up, so that the
holder of this Warrant may thereafter receive upon exercise hereof in lieu
of
each Warrant Share that it would have been entitled to receive, the same kind
and amount of any securities or assets as may be issuable, distributable or
payable upon any such sale, dissolution, liquidation or winding up with respect
to each share of Common Stock of the Company, provided, however, that in any
case of any such sale or of dissolution, liquidation or winding up, the right
to
exercise this Warrant shall terminate on a date fixed by the Company; such
date
so fixed to be not earlier than 5:00 p.m., Colorado time, on the forty-fifth
day
next succeeding the date on which notice of such termination of the right to
exercise this Warrant has been given by mail to the registered holder of this
Warrant at its address as it appears on the books of the Company.
(d)
No
adjustment in the per share Exercise Price shall be required unless such
adjustment would require an increase or decrease in the Exercise Price by at
least $0.01; provided, however, that any adjustments that by reason of this
subsection are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 8
shall be made to the nearest cent or to the nearest 1/100th of a share, as
the
case may be.
(e)
The
Company will not, by amendment of its Certificate of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company but will at all times in good faith assist
in
the carrying out of all the provisions of this Section 8 and in the taking
of
all such actions as may be necessary or appropriate in order to protect against
impairment of the rights of the Warrant Holder to adjustments in the Exercise
Price.
(f)
Upon
the
happening of any event requiring an adjustment of the Exercise Price hereunder,
the Company shall give written notice thereof to the Warrant Holder stating
the
adjusted Exercise Price and the adjusted number of Warrant Shares resulting
from
such event and setting forth in reasonable detail the method of calculation
and
the facts upon which such calculation is based.
9.
VOLUNTARY
ADJUSTMENT BY THE COMPANY
.
The
Company may, at its option, at any time during the term of the Warrants, reduce
the then current Exercise Price to any amount deemed appropriate by the Board
of
Directors of the Company and/or extend the date of the expiration of the
Warrants.
10.
RIGHTS
OF THE HOLDER
.
The
Warrant Holder shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or equity, and the rights of the
Warrant Holder are limited to those expressed in the Warrant and are not
enforceable against the Company except to the extent set forth herein.
11.
NOTICES
OF RECORD DATE
.
In
case:
(a)
the
Company shall take a record of the holders of its Common Stock (or other stock
or securities at the time deliverable upon the exercise of this Warrant) for
the
purpose of entitling or enabling them to receive any dividend or other
distribution, or to receive any right to subscribe for or purchase any shares
of
any class or any other securities, or to receive any other right, or
(b)
of
any
capital reorganization of the Company, any reclassification of the capital
stock
of the Company, any consolidation or merger of the Company with or into another
corporation (other than a consolidation or merger in which the Company is the
surviving entity), or any transfer of all or substantially all of the assets
of
the Company, or
(c)
of
the
voluntary or involuntary dissolution, liquidation or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to
the
Warrant Holder a notice specifying, as the case may be, (i) the date on which
a
record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right,
or
(ii) the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is
to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be mailed at least twenty days prior to the record date or
effective date for the event specified in such notice, provided that the failure
to mail such notice shall not affect the legality or validity of any such
action.
12.
SUCCESSORS
.
The
rights and obligations of the parties to this Warrant will inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
successors, assigns, pledgees, transferees and purchasers. Without limiting
the
foregoing, the registration rights referred to in Section 7 of this Warrant
shall inure to the benefit of the Warrant Holder and all the Warrant Holder’s
successors, heirs, pledgees, assignees, transferees and purchasers of this
Warrant and the Warrant Shares.
13.
CHANGE
OR WAIVER
.
Any
term of this Warrant may be changed or waived only by an instrument in writing
signed by the party against whom enforcement of the change or waiver is sought.
14.
HEADINGS
.
The
headings in this Warrant are for purposes of reference only and shall not limit
or otherwise affect the meaning of any provision of this Warrant.
15.
GOVERNING
LAW
.
This
Warrant shall be governed by and construed in accordance with the laws of the
State of Colorado as such laws are applied to contracts made and to be fully
performed entirely within that state between residents of that state except
to
the extent the laws of the State of Nevada mandatorily apply because the Company
is incorporated in the State of Nevada.
16.
JURISDICTION
AND VENUE
.
The
Company (i) agrees that any legal suit, action or proceeding arising out of
or
relating to this Warrant shall be instituted exclusively in the District Court,
City and County of Denver or in the United States District Court for the
District of Colorado, (ii) waives any objection to the venue of any such suit,
action or proceeding and the right to assert that such forum is not a convenient
forum, and (iii) irrevocably consents to the jurisdiction of the District Court,
City and County of Denver, and the United States District Court for the District
of Colorado in any such suit, action or proceeding, and the Company further
agrees to accept and acknowledge service or any and all process that may be
served in any such suit, action or proceeding in the District Court, City and
County of Denver or in the United States District Court for the District of
Colorado in person or by certified mail addressed as provided in the following
Section.
17.
MAILING
OF NOTICES, ETC
.
All
notices and other communications under this Warrant (except payment) shall
be in
writing and shall be sufficiently given if delivered to the addressees in
person, by Federal Express or similar overnight courier service, or if mailed,
postage prepaid, by certified mail, return receipt requested, as follows:
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Registered
Holder:
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To
his or her last known address as indicated on the Company’s books and
records.
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The
Company:
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To
the Company’s Chief Executive Officer at the address of the Company’s
principal office as set forth in the last filing by the Company with
the
SEC
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or
to
such other address as any of them, by notice to the others, may designate from
time to time. Notice shall be deemed given (a) when personally delivered, (b)
the scheduled delivery date if sent by Federal Express or other overnight
courier service or (c) the fifth day after sent by certified mail.
IN
WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer as of the ____ day of February, 2005.
AERO
GROW
INTERNATIONAL, INC.
By:
___________________________
Name:
W.
Michael Bissonnette
Title:
CEO and President
Notice
of Exercise
To
Be
Executed by the Warrant Holder In Order to Exercise Warrants
The
undersigned Warrant Holder hereby irrevocably elects to:
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¨
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exercise
_____________ Warrants represented by this Warrant, and to purchase
thereunder, _______________ full shares of Common Stock issuable
upon the
exercise of such Warrants, by delivery of $___________ ($6.25 per
share);
or
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¨
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exercise
_____________ Warrants represented by this Warrant, and to purchase
thereunder, such number of full shares of Common Stock issuable upon
the
net issue exercise of such Warrants in accordance with Section 2.2
of this
Warrant.
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The
undersigned Warrant Holder requests that certificates for such shares of Common
Stock shall be issued in the name of:
PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(please
print or type name and address)
and
be
delivered to
(please
print or type name and address)
and
if
such number of Warrants shall not be all the Warrants evidenced by this Warrant,
that a new Warrant for the balance of such Warrants be registered in the name
of, and delivered to, the registered Warrant Holder at the address stated
above.
The
undersigned hereby represents and warrants to the Company that it is an
“Accredited Investor” within the meaning of Rule 501(c) of the Securities Act of
1933, as amended (the “Securities Act”), and is acquiring these securities for
its own account and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or selling
the same. The undersigned further represents that it does not have any contract,
agreement, understanding or arrangement with any person to sell, transfer or
grant the shares of Common Stock issuable under this Warrant. The undersigned
understands that the shares it will be receiving are “restricted securities”
under Federal securities laws inasmuch as they are being acquired from AEROGROW
INTERNATIONAL, INC., in transactions not including any public offering and
that
under such laws, such shares may only be sold pursuant to an effective and
current registration statement under the Securities Act or an exemption from
the
registration requirements of the Securities Act and any other applicable
restrictions, in which event a legend or legends will be placed upon the
certificate(s) representing the Common Stock issuable under this Warrant
denoting such restrictions. The undersigned understands and acknowledges that
the Company will rely on the accuracy of these representations and warranties
in
issuing the securities underlying the Warrant.
Dated:
________________
_________________________________
(Signature
of Registered Holder)
ASSIGNMENT
FORM
To
be
executed by the Warrant Holder
In
order
to Assign Warrants
FOR
VALUE
RECEIVED,____________________________________ hereby sell, assigns and transfer
unto
PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(Please
print or type name and address)
______________________
of the Warrants represented by this Warrant, and hereby irrevocably constitutes
and appoints ________________________ Attorney to transfer this Warrant on
the
books of the Company, with full power of substitution in the
premises.
Dated:_____________________
___________________________________
(Signature
of Registered Holder)
______________________________
(Signature
Guaranteed)
THE
SIGNATURE ON THE EXERCISE FORM OR THE ASSIGNMENT FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED
BY A
COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK
EXCHANGE, COLORADO STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK
EXCHANGE.
CERTIFICATION
OF STATUS OF TRANSFEREE
TO
BE EXECUTED BY THE TRANSFEREE OF THIS WARRANT
The
undersigned transferee hereby certifies to the registered holder of this Warrant
and to AEROGROW INTERNATIONAL, INC. that the transferee is an “accredited
investor” within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended.
Dated:____________________
___________________________________
(Signature
of Transferee)
EXHIBIT
4.10
No.
_______
$2.50
WARRANT
To
Purchase Common Stock
of
AeroGrow
International, Inc.
(as
adjusted for a one for five split of shares of common stock
for
shareholders of record on May 31, 2005)
THIS
CERTIFIES THAT, upon surrender of this $2.50 Warrant at the office of AeroGrow
International, Inc., a Nevada corporation (“Company”), in the City of Boulder,
County of Boulder, State of Colorado, accompanied by payment as hereinafter
provided, _____________________________________ or assigns (“Holder”) is
entitled to purchase at any time prior to the expiration of the $2.50 Warrant
Exercise Period (as hereinafter defined), but not thereafter, _________________
shares of common stock (“Common Stock”), of AeroGrow International, Inc. as such
Common Stock shall be constituted at the time of purchase, which shares have
been duly authorized and set aside for issuance and will, upon such issuance,
be
fully paid and nonassessable, at the price of One Dollar and Twenty-five
cents
($2.50) per share, and not otherwise.
This
$2.50 Warrant shall be exercisable in whole at any time or in part from time
to
time (provided that not less than One Thousand (1,000) shares of Common Stock,
or any integral multiple of such amount, shall be purchased upon any such
partial exercise hereof), for the period from issuance through December 31,
2005, provided that the Common Stock issuable upon the exercise of this $2.50
Warrant is, at the time of exercise, registered or otherwise qualified for
sale
under the Securities Act of 1933, as amended, and the securities or “blue sky”
laws of the jurisdiction in which the exercise of this $2.50 Warrant is proposed
to be effected (“$2.50 Warrant Exercise Period”). Upon the expiration of the
$2.50 Warrant Exercise Period, this $2.50 Warrant will expire and become
void
and of no value. No fractional shares will be issued upon the exercise
hereof.
This
$2.50 Warrant shall be registered at the office of the Company and is
transferable only at said office by the registered Holder hereof or his duly
authorized attorney upon surrender of this certificate, properly
endorsed.
Upon
any
adjustment of the number of shares of Common Stock that may be purchased
upon
the exercise of this $2.50 Warrant and/or the purchase price per share, then
in
each such case the Company shall give written notice thereof, as herein below
provided, which notice shall state the purchase price per share resulting
from
such adjustment and the increase or decrease, if any, in the number of shares
of
Common Stock purchasable at such price upon the exercise of this $2.50 Warrant,
setting forth in reasonable detail the method of calculation and the facts
upon
which such calculation is based.
NEITHER
THIS $2.50 WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”) OR
APPLICABLE STATE SECURITIES LAWS, AND SUCH SECURITIES ARE BEING SOLD IN RELIANCE
UPON THE EXEMPTION FROM REGISTRATION PROVIDED IN SECTION 4(2) OF THE ACT
AND
REGULATIONS PROMULGATED THEREUNDER AND COMPARABLE PROVISIONS OF APPLICABLE
STATE
SECURITIES LAWS AND REGULATIONS.
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE CANNOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF, BY THE HOLDER HEREOF TO ANY OTHER PERSON OR ENTITY
UNLESS
SUCH TRANSACTION IS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND
UNDER THE APPLICABLE LAWS OF THE STATE OR JURISDICTION WHERE SUCH TRANSACTION
OCCURS, OR UNLESS SUCH TRANSACTION SHALL QUALIFY UNDER AN ALLOWED EXEMPTION
TO
SUCH REGISTRATION. AS A CONDITION TO TRANSFERRING SAID SHARES ON THE BOOKS
OF
THE CORPORATION, THE HOLDER HEREOF MAY BE REQUIRED TO FURNISH THE CORPORATION
WITH AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE CORPORATION TO THE EFFECT
THAT THE SAID TRANSACTION SO COMPLIES WITH APPLICABLE SECURITIES
LAWS.
The
Holder of this $2.50 Warrant shall not by virtue thereof have any rights
of a
shareholder of the Company or to notice of meetings of shareholders or of
any
other proceedings of the Company
.
This
$2.50 Warrant is divisible on surrender, in which case a new $2.50 Warrant
or
Warrants will be issued.
If
prior
to the expiration of this $2.50 Warrant, by exercise hereof or by its
terms:
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(a)
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The
Company shall be recapitalized through the subdivision of its outstanding
shares of Common Stock into a greater number of shares, or shall
by
exchange or substitution of or for its outstanding Common Stock
or
otherwise, reduce the number of such shares, then in each such
case the
number of shares deliverable upon the exercise of this $2.50 Warrant
shall
be changed in proportion to such increase or decrease of the outstanding
shares of such Common Stock of the Company, without any change
in the
aggregate payment by the $2.50 Warrant Holder from the aggregate
payment
specified on the face of this $2.50
Warrant.
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(b)
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A
dividend shall be declared or paid at any time on the Common Stock
of the
Company in its Common Stock or in securities convertible into Common
Stock
of the Company, then in each such case the number of shares deliverable
upon the exercise thereafter of this $2.50 Warrant shall, without
requiring any payment by the $2.50 Warrant Holder in addition to
the
payment specified on the face hereof, be increased in proportion
to the
increase, through such dividend, in the number of outstanding shares
of
Common Stock of the Company. In the computation of the increased
number of
shares deliverable upon the exercise of this $2.50 Warrant, any
dividend
paid or distributed upon the Common Stock in securities convertible
into
Common Stock shall be treated as a dividend paid in Common Stock
to the
extent that shares of Common Stock are issuable upon the conversion
thereof. The obligations of the Company and the rights of the Holder
hereof shall not be affected by the exercise of any conversion
privileges
heretofore granted to the holders of any of the stock or securities
of the
Company or of any other
corporation.
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(c)
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The
Company shall, at any time while any of the $2.50 Warrants are
outstanding, declare a dividend on its Common Stock, other than
as
provided in the preceding paragraph (b), then in each such case
the
Company shall give notice in writing to the registered Holder of
this
$2.50 Warrant, and such dividends so declared shall be made payable
only
to the shareholders of record on a date at least ten (10) days
subsequent
to the date of such notice, including stock issued pursuant to
the
exercise of such $2.50 Warrants prior to such record
date.
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(d)
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The
Company shall be recapitalized by reclassifying its outstanding
Common
Stock into stock without par value, or the Company or a successor
corporation shall consolidate or merge with, or convey all, or
substantially all, of its or any successor corporation's property
or
assets to, any other corporation or corporations (any such corporation
being included within the meaning of "successor corporation" as
hereinbefore used in the event of any consolidation or merger of
such
corporation with, or the sale of all, or substantially all, of
the
property or assets of such corporation to another corporation or
corporations) then in each such case, as a condition of such
recapitalization, consolidation, merger or conveyance, lawful and
adequate
provision shall be made whereby the Holder of each $2.50 Warrant
shall
thereafter have the right to purchase, upon the basis and upon
the terms
and conditions specified in this $2.50 Warrant, in lieu of the
shares of
Common Stock of the Company theretofore purchasable upon the exercise
of
this $2.50 Warrant, such shares of stock, securities or other assets
as
may be issued or payable with respect to, or in exchange for, the
number
of shares of Common Stock of the Company theretofore purchasable
upon the
exercise of this $2.50 Warrant had such recapitalization, consolidation,
merger or conveyance not taken place; and in any such event the
rights of
the $2.50 Warrant Holder to an adjustment of the number of shares
of
Common Stock purchasable upon the exercise of this $2.50 Warrant
as
hereinbefore provided shall continue and be preserved in respect
of any
stock that the $2.50 Warrant Holder becomes entitled to purchase.
It shall
be a condition of such consolidation, merger or conveyance that
each
successor corporation shall assume, in manner and form satisfactory
to the
Company, the obligation to deliver to the $2.50 Warrant Holder,
upon the
exercise of this $2.50 Warrant, such shares of stock, securities
or assets
as, in accordance with the provisions of this $2.50 Warrant, shall
have
been provided for such purpose. The Company shall assume no liability
for
its exercise of discretion hereunder, other than for willful
wrongdoing.
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This
$2.50 Warrant shall be deemed to have been exercised, and the Holder exercising
the same to have become a shareholder of record of the Company, for the purpose
of receiving dividends and for all other purposes whatsoever as of the date
the
Holder surrendered this $2.50 Warrant accompanied by payment in cash, as
herein
provided. The Company agrees that, while this $2.50 Warrant shall remain
valid
and outstanding, its stock transfer books shall not be closed for any purpose
whatsoever, except under arrangements that shall insure to Holders exercising
$2.50 Warrants or applying for transfer of stock within five (5) days after
the
books shall have been reopened all rights and privileges that they might
have
had or received if the transfer books had not been closed and they had exercised
their $2.50 Warrants at any time during which such transfer books shall have
been closed.
Upon
each
increase or decrease in the number of shares of Common Stock of the Company
deliverable upon the exercise of this $2.50 Warrant, or in the event of changes
in the rights of the $2.50 Warrant Holders by reason of other events
hereinbefore set forth, then in each such case the Company shall forthwith
file
with the Company a certificate executed by its President or one of its Vice
Presidents, and attested by its Secretary or one of its Assistant Secretaries,
stating the increased or decreased number of shares so deliverable and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
The
Company covenants, at all times when $2.50 Warrants are outstanding and in
effect, to reserve, unissued, such number of shares of Common Stock as it
may be
required to deliver pursuant to the exercise of this $2.50 Warrant, subject
to
consolidation, merger or sale, as hereinabove set forth.
As
used
herein, the terms "Holder" "$2.50 Warrant Holder" and "Holder of this $2.50
Warrant" shall be construed to mean the registered holder hereof, and, in
the
case of any notice required by this $2.50 Warrant to be given to the $2.50
Warrant Holder, it shall be sufficient if mailed to the last known address
of
such Holder as the same appears on the books of the Company.
IN
WITNESS WHEREOF, AEROGROW INTERNATIONAL, INC. has caused this $2.50 Warrant
to
be signed in its corporate name by its President or a Vice President, manually
or in facsimile, and its corporate seal or a facsimile to be imprinted hereon
and attested by the manual or facsimile signature of its Secretary or an
Assistant Secretary, as of the day and year first above written.
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AEROGROW
INTERNATIONAL, INC.
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Attest:
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By:
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Secretary
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President
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[CORPORATE
SEAL]
SUBSCRIPTION
FORM
(To
be
Executed Upon Exercise of $2.50 Warrant)
The
undersigned, the Holder(s) or assignee(s) of such Holder(s) of the within
$2.50
Warrant, hereby (i) subscribes for shares of Common Stock that the undersigned
is entitled to purchase under the terms of the within $2.50 Warrant and (ii)
tenders herewith the full exercise price of all shares subscribed
for.
Dated:
_________________________
Number
of
Shares Subscribed For:
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______________
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(Signature)
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(Signature)
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ASSIGNMENT
(To
Be
Executed By the Registered Holder to Effect
a
Transfer of the Within $2.50 Warrant)
FOR
VALUE
RECEIVED, the undersigned $2.50 Warrant Holder(s) do(es) hereby sell, assign
and
transfer unto ________________________________________ the right to purchase
common stock evidenced by this $2.50 Warrant, and does hereby irrevocably
constitute and appoint __________________________________________to transfer
the
said right on the books of the Company, with full power of
substitution.
Dated:
_________________________
NEITHER
THIS $2.50 WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”), AND SUCH
SECURITIES ARE BEING SOLD IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION
PROVIDED IN SECTION 4(2) OF THE ACT. THIS $2.50 WARRANT AND ANY SHARES OF
COMMON
STOCK ISSUABLE UPON EXERCISE HEREOF
CANNOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF, BY THE HOLDER HEREOF TO ANY
OTHER
PERSON OR ENTITY UNLESS SUCH TRANSACTION IS REGISTERED UNDER THE SECURITIES
ACT
OF 1933, AS AMENDED, AND UNDER THE APPLICABLE LAWS OF THE STATE OR JURISDICTION
WHERE SUCH TRANSACTION OCCURS, OR UNLESS SUCH TRANSACTION SHALL QUALIFY UNDER
AN
ALLOWED EXEMPTION TO SUCH REGISTRATION. AS A CONDITION TO TRANSFERRING SAID
SHARES ON THE BOOKS OF THE CORPORATION, THE HOLDER HEREOF MAY BE REQUIRED
TO
FURNISH THE CORPORATION WITH AN OPINION OF LEGAL COUNSEL SATISFACTORY TO
THE
CORPORATION TO THE EFFECT THAT THE SAID TRANSACTION SO COMPLIES WITH APPLICABLE
SECURITIES LAWS.
EXHIBIT
4.12
No.
_______
$5.00
WARRANT
To
Purchase Common Stock
of
AeroGrow
International, Inc.
(as
adjusted for a one for five split of shares of common stock
for
shareholders of record on May 31, 2005)
THIS
CERTIFIES THAT, upon surrender of this $5.00 Warrant at the office of AeroGrow
International, Inc., a Nevada corporation (“Company”), in the City of Boulder,
County of Boulder, State of Colorado, accompanied by payment as hereinafter
provided, _____________________________________ or assigns (“Holder”) is
entitled to purchase at any time prior to the expiration of the $5.00 Warrant
Exercise Period (as hereinafter defined), but not thereafter, _________________
shares of common stock (“Common Stock”), of AeroGrow International, Inc. as such
Common Stock shall be constituted at the time of purchase, which shares have
been duly authorized and set aside for issuance and will, upon such issuance,
be
fully paid and nonassessable, at the price of One Dollar and Twenty-five
cents
($5.00) per share, and not otherwise.
This
$5.00 Warrant shall be exercisable in whole at any time or in part from time
to
time (provided that not less than One Thousand (1,000) shares of Common Stock,
or any integral multiple of such amount, shall be purchased upon any such
partial exercise hereof), for the period from issuance through December 31,
2005, provided that the Common Stock issuable upon the exercise of this $5.00
Warrant is, at the time of exercise, registered or otherwise qualified for
sale
under the Securities Act of 1933, as amended, and the securities or “blue sky”
laws of the jurisdiction in which the exercise of this $5.00 Warrant is proposed
to be effected (“$5.00 Warrant Exercise Period”). Upon the expiration of the
$5.00 Warrant Exercise Period, this $5.00 Warrant will expire and become
void
and of no value. No fractional shares will be issued upon the exercise
hereof.
This
$5.00 Warrant shall be registered at the office of the Company and is
transferable only at said office by the registered Holder hereof or his duly
authorized attorney upon surrender of this certificate, properly
endorsed.
Upon
any
adjustment of the number of shares of Common Stock that may be purchased
upon
the exercise of this $5.00 Warrant and/or the purchase price per share, then
in
each such case the Company shall give written notice thereof, as herein below
provided, which notice shall state the purchase price per share resulting
from
such adjustment and the increase or decrease, if any, in the number of shares
of
Common Stock purchasable at such price upon the exercise of this $5.00 Warrant,
setting forth in reasonable detail the method of calculation and the facts
upon
which such calculation is based.
NEITHER
THIS $5.00 WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”) OR
APPLICABLE STATE SECURITIES LAWS, AND SUCH SECURITIES ARE BEING SOLD IN RELIANCE
UPON THE EXEMPTION FROM REGISTRATION PROVIDED IN SECTION 4(2) OF THE ACT
AND
REGULATIONS PROMULGATED THEREUNDER AND COMPARABLE PROVISIONS OF APPLICABLE
STATE
SECURITIES LAWS AND REGULATIONS.
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE CANNOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF, BY THE HOLDER HEREOF TO ANY OTHER PERSON OR ENTITY
UNLESS
SUCH TRANSACTION IS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND
UNDER THE APPLICABLE LAWS OF THE STATE OR JURISDICTION WHERE SUCH TRANSACTION
OCCURS, OR UNLESS SUCH TRANSACTION SHALL QUALIFY UNDER AN ALLOWED EXEMPTION
TO
SUCH REGISTRATION. AS A CONDITION TO TRANSFERRING SAID SHARES ON THE BOOKS
OF
THE CORPORATION, THE HOLDER HEREOF MAY BE REQUIRED TO FURNISH THE CORPORATION
WITH AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE CORPORATION TO THE EFFECT
THAT THE SAID TRANSACTION SO COMPLIES WITH APPLICABLE SECURITIES
LAWS.
The
Holder of this $5.00 Warrant shall not by virtue thereof have any rights
of a
shareholder of the Company or to notice of meetings of shareholders or of
any
other proceedings of the Company
.
This
$5.00 Warrant is divisible on surrender, in which case a new $5.00 Warrant
or
Warrants will be issued.
If
prior
to the expiration of this $5.00 Warrant, by exercise hereof or by its
terms:
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(a)
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The
Company shall be recapitalized through the subdivision of its outstanding
shares of Common Stock into a greater number of shares, or shall
by
exchange or substitution of or for its outstanding Common Stock
or
otherwise, reduce the number of such shares, then in each such
case the
number of shares deliverable upon the exercise of this $5.00 Warrant
shall
be changed in proportion to such increase or decrease of the outstanding
shares of such Common Stock of the Company, without any change
in the
aggregate payment by the $5.00 Warrant Holder from the aggregate
payment
specified on the face of this $5.00
Warrant.
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(b)
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A
dividend shall be declared or paid at any time on the Common Stock
of the
Company in its Common Stock or in securities convertible into Common
Stock
of the Company, then in each such case the number of shares deliverable
upon the exercise thereafter of this $5.00 Warrant shall, without
requiring any payment by the $5.00 Warrant Holder in addition to
the
payment specified on the face hereof, be increased in proportion
to the
increase, through such dividend, in the number of outstanding shares
of
Common Stock of the Company. In the computation of the increased
number of
shares deliverable upon the exercise of this $5.00 Warrant, any
dividend
paid or distributed upon the Common Stock in securities convertible
into
Common Stock shall be treated as a dividend paid in Common Stock
to the
extent that shares of Common Stock are issuable upon the conversion
thereof. The obligations of the Company and the rights of the Holder
hereof shall not be affected by the exercise of any conversion
privileges
heretofore granted to the holders of any of the stock or securities
of the
Company or of any other
corporation.
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(c)
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The
Company shall, at any time while any of the $5.00 Warrants are
outstanding, declare a dividend on its Common Stock, other than
as
provided in the preceding paragraph (b), then in each such case
the
Company shall give notice in writing to the registered Holder of
this
$5.00 Warrant, and such dividends so declared shall be made payable
only
to the shareholders of record on a date at least ten (10) days
subsequent
to the date of such notice, including stock issued pursuant to
the
exercise of such $5.00 Warrants prior to such record
date.
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(d)
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The
Company shall be recapitalized by reclassifying its outstanding
Common
Stock into stock without par value, or the Company or a successor
corporation shall consolidate or merge with, or convey all, or
substantially all, of its or any successor corporation's property
or
assets to, any other corporation or corporations (any such corporation
being included within the meaning of "successor corporation" as
hereinbefore used in the event of any consolidation or merger of
such
corporation with, or the sale of all, or substantially all, of
the
property or assets of such corporation to another corporation or
corporations) then in each such case, as a condition of such
recapitalization, consolidation, merger or conveyance, lawful and
adequate
provision shall be made whereby the Holder of each $5.00 Warrant
shall
thereafter have the right to purchase, upon the basis and upon
the terms
and conditions specified in this $5.00 Warrant, in lieu of the
shares of
Common Stock of the Company theretofore purchasable upon the exercise
of
this $5.00 Warrant, such shares of stock, securities or other assets
as
may be issued or payable with respect to, or in exchange for, the
number
of shares of Common Stock of the Company theretofore purchasable
upon the
exercise of this $5.00 Warrant had such recapitalization, consolidation,
merger or conveyance not taken place; and in any such event the
rights of
the $5.00 Warrant Holder to an adjustment of the number of shares
of
Common Stock purchasable upon the exercise of this $5.00 Warrant
as
hereinbefore provided shall continue and be preserved in respect
of any
stock that the $5.00 Warrant Holder becomes entitled to purchase.
It shall
be a condition of such consolidation, merger or conveyance that
each
successor corporation shall assume, in manner and form satisfactory
to the
Company, the obligation to deliver to the $5.00 Warrant Holder,
upon the
exercise of this $5.00 Warrant, such shares of stock, securities
or assets
as, in accordance with the provisions of this $5.00 Warrant, shall
have
been provided for such purpose. The Company shall assume no liability
for
its exercise of discretion hereunder, other than for willful
wrongdoing.
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This
$5.00 Warrant shall be deemed to have been exercised, and the Holder exercising
the same to have become a shareholder of record of the Company, for the purpose
of receiving dividends and for all other purposes whatsoever as of the date
the
Holder surrendered this $5.00 Warrant accompanied by payment in cash, as
herein
provided. The Company agrees that, while this $5.00 Warrant shall remain
valid
and outstanding, its stock transfer books shall not be closed for any purpose
whatsoever, except under arrangements that shall insure to Holders exercising
$5.00 Warrants or applying for transfer of stock within five (5) days after
the
books shall have been reopened all rights and privileges that they might
have
had or received if the transfer books had not been closed and they had exercised
their $5.00 Warrants at any time during which such transfer books shall have
been closed.
Upon
each
increase or decrease in the number of shares of Common Stock of the Company
deliverable upon the exercise of this $5.00 Warrant, or in the event of changes
in the rights of the $5.00 Warrant Holders by reason of other events
hereinbefore set forth, then in each such case the Company shall forthwith
file
with the Company a certificate executed by its President or one of its Vice
Presidents, and attested by its Secretary or one of its Assistant Secretaries,
stating the increased or decreased number of shares so deliverable and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
The
Company covenants, at all times when $5.00 Warrants are outstanding and in
effect, to reserve, unissued, such number of shares of Common Stock as it
may be
required to deliver pursuant to the exercise of this $5.00 Warrant, subject
to
consolidation, merger or sale, as hereinabove set forth.
As
used
herein, the terms "Holder" "$5.00 Warrant Holder" and "Holder of this $5.00
Warrant" shall be construed to mean the registered holder hereof, and, in
the
case of any notice required by this $5.00 Warrant to be given to the $5.00
Warrant Holder, it shall be sufficient if mailed to the last known address
of
such Holder as the same appears on the books of the Company.
IN
WITNESS WHEREOF, AEROGROW INTERNATIONAL, INC. has caused this $5.00 Warrant
to
be signed in its corporate name by its President or a Vice President, manually
or in facsimile, and its corporate seal or a facsimile to be imprinted hereon
and attested by the manual or facsimile signature of its Secretary or an
Assistant Secretary, as of the day and year first above written.
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AEROGROW
INTERNATIONAL, INC.
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Attest:
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By:
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Secretary
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President
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[CORPORATE
SEAL]
SUBSCRIPTION
FORM
(To
be
Executed Upon Exercise of $5.00 Warrant)
The
undersigned, the Holder(s) or assignee(s) of such Holder(s) of the within
$5.00
Warrant, hereby (i) subscribes for shares of Common Stock that the undersigned
is entitled to purchase under the terms of the within $5.00 Warrant and (ii)
tenders herewith the full exercise price of all shares subscribed
for.
Dated:
_________________________
Number
of
Shares Subscribed For:
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______________
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(Signature)
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(Signature)
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ASSIGNMENT
(To
Be
Executed By the Registered Holder to Effect
a
Transfer of the Within $5.00 Warrant)
FOR
VALUE
RECEIVED, the undersigned $5.00 Warrant Holder(s) do(es) hereby sell, assign
and
transfer unto ________________________________________ the right to purchase
common stock evidenced by this $5.00 Warrant, and does hereby irrevocably
constitute and appoint __________________________________________to transfer
the
said right on the books of the Company, with full power of
substitution.
Dated:
_________________________
NEITHER
THIS $5.00 WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”), AND SUCH
SECURITIES ARE BEING SOLD IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION
PROVIDED IN SECTION 4(2) OF THE ACT. THIS $5.00 WARRANT AND ANY SHARES OF
COMMON
STOCK ISSUABLE UPON EXERCISE HEREOF
CANNOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF, BY THE HOLDER HEREOF TO ANY
OTHER
PERSON OR ENTITY UNLESS SUCH TRANSACTION IS REGISTERED UNDER THE SECURITIES
ACT
OF 1933, AS AMENDED, AND UNDER THE APPLICABLE LAWS OF THE STATE OR JURISDICTION
WHERE SUCH TRANSACTION OCCURS, OR UNLESS SUCH TRANSACTION SHALL QUALIFY UNDER
AN
ALLOWED EXEMPTION TO SUCH REGISTRATION. AS A CONDITION TO TRANSFERRING SAID
SHARES ON THE BOOKS OF THE CORPORATION, THE HOLDER HEREOF MAY BE REQUIRED
TO
FURNISH THE CORPORATION WITH AN OPINION OF LEGAL COUNSEL SATISFACTORY TO
THE
CORPORATION TO THE EFFECT THAT THE SAID TRANSACTION SO COMPLIES WITH APPLICABLE
SECURITIES LAWS.
EXHIBIT
10.1
LEASE
AMENDMENT OF APRIL 1, 2005
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PROPERTY
NAME:
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The
Lotus Building
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EFFECTIVE
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October
1, 2004
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UNITED
PROFESSIONAL MANAGEMENT, INC. as agent for the owner, called Landlord under
that
certain LEASE AGREEMENT (the "Lease") EFFECTIVE October 1, 2003, between
parties
hereto and AEROGROW INTERNATIONAL INC., hereinafter called Tenant under the
Lease do hereby agree as follows:
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1.
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The
Lease shall continue until April 30,
2006
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2.
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The
monthly rent, payable in advance, for the term shall
be:
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b.
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6336
shares of stock and issued in advance at the beginning of each
three
months beginning October 1, 2004.
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c.
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A
to-be-determined sur-charge for the excess utility
usage
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3.
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Tenant
shall have the right to terminate this lease by giving a minimum
of ninety
days written notice and in no event before the last day of the
month. At
the same time of submitting the written notice to terminate, Tenant
will
pay all the shares of stock rent due up to the termination date
and will
pay the cash rent on a monthly
basis.
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4.
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All
other terms and conditions of the Lease shall remain the same except
that
there shall be no further options to
renew.
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TENANT
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LANDLORD
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AeroGrow
International, Inc.
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United
Professional Management, Inc.
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/s/
Frederic Wiedemann, VP
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/s/
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LEASE
AMENDMENT
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PROPERTY
NAME:
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The
Lotus Building
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EFFECTIVE:
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October
7, 2003
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UNITED
PROFESSIONAL MANAGEMENT, INC. as agent for the owner, called Landlord under
that
certain LEASE AGREEMENT (the "Lease") EFFECTIVE October 1, 2003, between
parties
hereto and AEROGROW INTERNATIONAL INC.; hereinafter called Tenant under the
Lease do hereby agree as follows:
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1.
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ADDITION
OF SUITE 203 AND SUITE 204: Effective March 1, 2004, Tenant shall
include
Suite 203 and Suite 204 to the remaining term of the above described
Lease. Tenant may add portions or all of the Suites prior to March
1, 2003
and will pay a prorated rent beginning on the date the additional
area is
added.
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2.
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RENT:
The monthly rent for such period of extension from March 1, 2004
to and
thru midnight September 30, 2004, shall be $2,556 cash and 2,625
shares of
stock. Rent from October 1, 2003 until March 1, 2004 will be on
prorated
basis for both the cash and stock amount computed upon the amount
of space
used each month.
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3.
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The
Premises as outlined to Section I. Premises shall be amended to
read
Suites 201, 203 and 204, which are delineated on Exhibit B attached
hereto
and incorporated by this reference.
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4.
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SECURITY
DEPOSIT: The security deposit shall be increased by $1,400 to a
total of
$3,400.00
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5.
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All
other terms and conditions of the Lease shall remain the
same.
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TENANT
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LANDLORD
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AeroGrow
International, Inc.
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United
Professional Management, Inc.
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/s/
Frederic Wiedemann, VP
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/s/
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LEASE
AGREEMENT
THIS
LEASE, effective on October 1, 2003, is entered into by and between United
Professional Management, Inc., authorized agent for the owner, hereinafter
called Landlord, and AeroGrow International Inc., a Nevada corporation,
hereinafter called Tenant.
1.
Premises.
Landlord
hereby leases to Tenant that portion of The Lotus Building commonly known
as
Suites 201 (referred to herein as the Premises), the location and approximate
dimensions of which are delineated on EXHIBIT A attached hereto and incorporated
by this reference. Such building and improvements are situated upon real
property, which is legally described as follows:
The
South
1/2 of the South 1/2 of the Northeast 1/4 of Section 32, Township 1 North,
Range
70 West of the Sixth P.M., except the East 347 feet thereof and except also
portions excepted in a conveyance of said real estate by CONSUMERS NATIONAL
LIFE
INSURANCE COMPANY; County of Boulder, State of Colorado;
also
known as 900 28th Street, Boulder, Colorado 80303. The Premises are leased
together with the nonexclusive use of six (6) unassigned parking spaces in
the
parking lot, which use shall be in common with other tenants of the
building.
2.
Term.
2.1
Term
.
The
term of this lease shall be one (1) year, beginning on October 1, 2003 and
ending on September 30, 2004, both dates inclusive, unless sooner terminated
as
herein provided.
2.2
Occupancy
.
Taking
possession of the Premises or any part thereof by Tenant shall be conclusive
evidence that Tenant accepts the Premises in its present condition. Tenant
may
have use of the Premises prior to October 1, 2003 for the purpose of doing
authorized Tenant improvements. If Tenant operates its business in the Premises
prior to October 1, 2003, Tenant will pay a daily prorated rent to
Landlord.
2.3
Right
of Extension
.
Tenant
is granted the right to extend the basic term for one (1) consecutive period
of
THREE (3) years, all upon the same agreements and conditions, except rent,
which
shall be at the basic rate as determined by the provisions outlined in Exhibit
C
provided that (1) Tenant is not in material default at the commencement of
the
extended term, (2) Tenant gives written notice to Landlord of its intention
to
extend the Lease at least ninety (90) days prior to the expiration of the
Lease
Term, (3) In no event shall the Base Rent for any Renewal Period be less
than
the Base Rent for the immediate prior year.
3.
Security
Deposit.
3.1
Payment
of Deposit
.
Upon
execution of this Lease, Tenant shall pay to Landlord the sum of Two Thousand
Dollars ($2,000.00) as security for Tenant's full and faithful performance
of
all covenants and conditions of this Lease to be kept and performed by Tenant.
Said sum shall be returned to Tenant after the expiration of the term of
this
Lease provided Tenant has fully and faithfully performed all such covenants
and
conditions. Prior to the time when Tenant shall be entitled to the return
of the
security deposit, Landlord shall be entitled to intermingle such deposit
with
its own funds and to use such sum for such purposes as Landlord may determine.
Tenant shall not be entitled to any interest on the security
deposit.
3.2
Default,
by Tenant
.
In the
event of default by Tenant in with respect to any provision of this Lease,
including, but not limited to, the payment of rent and additional rent, Landlord
may use, apply or retain all or any part of such security deposit for the
payment of any unpaid rent and additional rent, or for any other amount which
Landlord may be required to spend by reason of the default of Tenant, including
any damages or deficiency in re-leasing of the Premises, regardless of whether
the accrual of such damages or deficiency occurs before or after an eviction
or
a summary re-entry or other re-entry by Landlord. If any portion of the security
deposit is so used or applied, Tenant shall, within five (5) days after notice
from Landlord, deposit cash with Landlord in an amount sufficient to restore
the
security deposit to its original amount, and failure to do so shall constitute
a
default under this Lease.
4.
Base
Rent.
The
amount of annual Base Rent due from Tenant during the term of this Lease
shall
be $18,000.00. Tenant shall pay Landlord the Base Rent in twelve equal monthly
installments of $1,500.00 without notice or demand and without any deduction
or
set-off, at 4990 Osage Dr., #C-100, Boulder, Colorado 80306-7004, or at such
other place as Landlord may direct in writing. Each monthly rent installment
shall be due and payable, in advance, on or before the first day of each
month
during the term of this Lease.
5.
Additional
Rent.
Tenant
agrees to pay as Additional Rent an amount equal to Tenant's Proportionate
Share
of any "Operating Expenses" and "Real Estate Taxes" as said terms are
hereinafter defined. During the first year of this lease, the Additional
Rent
shall be a fixed amount and payable quarterly in advance, by the issuance
of
stock issued by AreoGrow International, Inc. (See Exhibit B)
5.1
Operating
Expenses
.
"Operating Expenses" for the purposes of this paragraph 5, shall mean all
reasonable and necessary costs and expenses of every kind and nature, other
than
those expressly excluded below, paid or incurred by Landlord in operating,
managing, repairing, maintaining and administering the Building including,
without limitation or duplication:
(a)
The
costs
of general repairs, maintenance and replacements, excluding capital
expenditures, made from time to time by Landlord to the Building, including
costs under mechanical or other maintenance contracts and repairs and
replacements of equipment used in connection with such maintenance and repair
work.
(b)
The
cost
of pest control, security, cleaning and snow and ice removal
services.
(c)
The
cost
of maintaining, repairing, redecorating, renovating, replacement of floor
coverings, and landscaping the common facilities used by the public and other
tenants, such as elevator, hallways, stairways, etc. not for the exclusive
use
of a single tenant, hereafter referred to as "Common Facilities," and of
maintaining and operating any fire detection, fire prevention, lighting and
communications systems.
(d)
The
cost
of all utilities (including, without limitation, water, sewer, gas and
electricity) used or consumed.
(e)
The
cost
of providing heating, ventilating and cooling to the interior portions of
the
Building, if any.
(f)
Remuneration
and fees of persons and companies to the extent engaged in repairing,
maintaining, or administering the Building.
(g)
The
cost
of professional property management fees.
(h)
Costs
incurred by Landlord or its agents in engaging accountants or other consultants
to assist in making the computations required hereunder.
(i)
The
cost
of capital improvements and structural repairs and replacements made in,
on, or
to the Building that are (i) made in order to conform to changes subsequent
to
the Commencement Date in any applicable laws, ordinances, rules, regulations
or
orders of any governmental or quasi-governmental authority having jurisdiction
over the Building, or (ii) designed primarily to reduce Operating Expenses
or
the rate of increase in Operating Expenses, or (iii) the replacement of the
roof, heating, ventilating and air conditioning equipment; such costs shall
be
charged by Landlord to Operating Expense in equal annual installments over
the
useful life of such capital improvement or structural repair or replacement
(as
reasonably determined by Landlord) together with interest on the balance
of the
un-reimbursed costs at two percent (2%) above the average Prime Rate charged
by
three major banks in Boulder on the date the cost was incurred by
Landlord.
(j)
Other
costs and expenses, including supplies, not otherwise expressly excluded
hereunder attributable to the operation, management, repair, maintenance
and
administration of the Building.
5.2
Excluded
Expenses
.
Operating Expenses shall not, however, include the following:
(a)
Any
charge for depreciation of the Building or equipment and any principal, interest
or other finance charge.
(b)
The
cost
of any work, including painting, decorating and work in the nature of tenant
finish, which Landlord performs in any rentable premises other than work
of a
kind and scope which Landlord would be obligated to perform in the demised
premises.
(c)
The
cost
of repairs, replacements or other work occasioned by insured casualty or
defects
in construction or equipment to the extent such cost is reimbursed to Landlord
(or not charged to Landlord) by reason of collected insurance proceeds (using
Landlord's good faith efforts to collect such proceeds) or any contractors',
manufacturers', or suppliers' warranties.
(d)
Expenditures
required to be capitalized for federal income tax purposes (except as provided
in Section 5.1(i)).
(e)
Leasing
commissions, advertising expenses and other costs incurred in leasing space
in
the Building except as otherwise expressly provided in this Lease.
(f)
The
cost
of repairing or rebuilding necessitated by condemnation.
(g)
The
cost
of any damage to the Building or any settlement, payment or judgment incurred
by
Landlord, resulting from Landlord's tortious act, neglect or breach of this
Lease that is not covered by insurance proceeds.
5.3
Real
Estate Taxes
.
"Real
Estate Taxes" shall mean all real estate taxes, assessments, and other
governmental impositions and charges of every kind and nature whatsoever,
extraordinary as well as ordinary, foreseen and unforeseen, and each and
every
installment thereof, which shall or may during the Lease term be levied,
assessed, imposed, become due and payable or liens upon, or which arise in
connection with the use, occupancy or possession of, or become due and payable
out of, or for the Building or any part thereof. If at any time during the
term
of this Lease the method of taxation of real estate prevailing at the time
of
execution hereof shall be or has been altered so as to cause the whole or
any
part of the taxes now or hereafter levied, assessed or imposed on real estate
to
be levied, assessed or imposed upon Landlord wholly or partially as a capital
levy or measured by the rents received therefrom then such new or altered
taxes
attributable to the Premises shall be deemed to be included within the term
"Real Estate Taxes" for the purposes of this subparagraph, except that such
shall not be deemed to include any enhancement of said tax attributable to
another income or other ownerships of Landlord. Tenant shall in no event
be
responsible for, or reimburse Landlord for any general income tax liabilities
incurred by Landlord.
5.4
Payment
of Additional Rent
.
(a)
It
is
hereby agreed that Tenant shall pay to Landlord as Additional Rent during
each
calendar year during the term hereof an estimate of "Tenant's Proportionate
Share of Operating Expenses and Real Estate Taxes" for the calendar year
as
reasonably estimated by Landlord, payable monthly, at the rate of one-twelfth
(1/12) thereof, on the same date and at the same place that base rent as
described in Section 1 is or would otherwise be payable, with an adjustment
to
be made between the parties at a later date as hereinafter provided. Tenant
shall deliver to Tenant, as soon as practicable following the end of any
calendar year, but in no event later than June 30th, an estimate of the
Operating Expenses and Real Estate Taxes for the new calendar year (the "Budget
Sheet"). Until receipt of the Budget Sheet, Tenant shall continue to pay
its
monthly Tenant's Proportionate Share of Operating Expenses and Real Estate
Taxes
based upon the estimate for the preceding calendar year. To the extent that
the
Budget Sheet reflects an estimate of Tenant's Proportionate Share of Operating
Expenses and Real Estate Taxes for the new calendar year greater than the
amount
actually paid to the date of receipt of the Budget Sheet for the new calendar
year, Tenant shall pay such amount to Landlord within thirty (30) days of
receipt of the Budget Sheet. Upon receipt of the Budget Sheet, Tenant shall
thereafter pay the amount of its monthly Tenant's Proportionate Share of
Operating Expenses and Real Estate Taxes. Notwithstanding the foregoing,
Landlord's failure to deliver the Budget Sheet to Tenant on or before June
30th,
shall in no way serve as a waiver of Landlord's right under this Section.
As
soon as practicable following the end of any calendar year, but not later
than
June 30th, Landlord shall submit to Tenant a statement in reasonable detail
describing the computations of the Operating Expenses and Real Estate Taxes,
setting forth the exact amount of Tenant's Proportionate Share of Operating
Expenses and Real Estate Taxes for the calendar year just completed (the
"Statement"), and the difference, if any, between the actual Tenant's
Proportionate Share of Operating Expenses and Real Estate Taxes for the calendar
year just completed and the estimated amount of Tenant's Proportionate Share
of
Operating Expenses and Real Estate Taxes paid by Tenant to Landlord.
Notwithstanding the foregoing, Landlord's failure to deliver the Statement
to
Tenant on or before June 30th, shall in no way serve as a waiver of Landlord's
right under this Section. To the extent that the actual Tenant's Proportionate
Share of Operating Expenses and Real Estate Taxes for the period covered
by the
Statement is higher than the estimated Tenant's Proportionate Share of Operating
Expenses and Real Estate Taxes which Tenant previously paid during the calendar
year just completed, Tenant shall also pay to Landlord such balance within
thirty (30) days following receipt of the Statement from Landlord. To the
extent
that the actual Tenant's Proportionate Share of Operating Expenses and Real
Estate Taxes for the period covered by the Statement is less than the estimated
Tenant's Proportionate Share of Operating Expenses and Real Estate Taxes
which
Tenant previously paid during the calendar year just completed, Landlord
shall
credit the excess against any sums then owing or next becoming due from Tenant
to Landlord under the Lease.
(b)
If
the
Lease term hereunder covers a period of less than a full calendar year during
the first or last calendar years of the term hereof, Tenant's Proportionate
Share of Operating Expenses and Real Estate Taxes for such partial year shall
be
calculated proportionately to reflect the number of months in such year during
which Tenant leased the Premises.
(c)
Even
though the term has expired, when the final determination is made of Tenant's
share of Operating Expenses for the year in which this Lease terminates,
Tenant
shall immediately pay any increase due over the estimated expenses paid and,
conversely, any overpayment made in the even said expenses decreased shall
be
immediately rebated by Landlord to Tenant.
6.
Late
Charge.
If
Landlord does not receive any monthly rent installment within five (5) days
after the day upon which the installment is due, Tenant agrees to pay a late
charge of one percent (1%) of the monthly rent installment per day, commencing
with the due date, not to exceed ten percent (10%) of the monthly rental
installment; provided; however, that if the fifth day of the month falls
on a
Saturday, Sunday or legal holiday, the late charge shall not be due if the
rent
is received by Landlord on the next business day following the fifth day
of the
month.
7.
Use
of Premises
.
7.1
Permitted
Use
.
Tenant
shall use and occupy the Premises solely as office space and related uses
and
for no other purpose whatsoever without Landlord's prior written
consent.
7.2
Prohibited
Use
.
Tenant
shall not use or permit the use of the Premises in a manner (nor do or permit
to
be done in the Premises anything) which will in any way increase the existing
premium for, or otherwise affect any insurance upon the Premises; or which
will
cause or be likely to cause structural damage to any part of the building;
or
which will constitute a public or private nuisance; or which violates any
laws
or regulations of any governmental authority. Tenant shall not commit or
allow
to be committed any waste in or upon the Premises.
8.
Signs.
Landlord
shall provide, at Landlord's expense, a building directory, which shall include
a listing of the business name and suite number of each tenant within the
building, including Tenant. The design and location of such directory shall
be
determined in Landlord's sole discretion. Tenant, at Tenant's expense, may
affix
and maintain upon or within twelve (12) inches of the door to the Premises
such
sign, name or insignia as have obtained written approval of Landlord as to
location, type, size, color and display qualities. Landlord may require that
all
signs affixed or maintained by Tenant conform to standard sign
criteria.
9.
General
Covenants of Tenant.
9.1
Compliance
with Regulations
.
Tenant
shall promptly comply with all laws, orders, and regulations of federal,
state,
county and municipal authorities, and with any direction of any public officer,
pursuant to law, which shall impose any duty upon Landlord or Tenant with
respect to the leased premises including fire and safety regulations; provided,
however, that Tenant shall not be required to expend more than $2,500.00
during
the term of this Lease in complying with the requirements of this subparagraph.
In the event that such public authority requires repair or improvement to
the
building which requires expenditure of more than $50,000.00, Landlord shall
have
the option, in lieu of making the repairs or improvements, to terminate this
Lease by giving Tenant notice of such intention. Following such notice, the
Lease shall terminate upon the last day occupancy is permitted by the public
authority issuing the order requiring the repairs or improvements.
9.2
Licenses
and Permits
.
After
commencement of this lease, Tenant, at its sole expense, shall obtain all
licenses or permits which may be required for the conduct of its business
with
the terms of this Lease, or for the making of repairs, alterations, improvements
or additions, and Landlord, where necessary will cooperate with Tenant in
applying for all such permits or licenses, but Landlord shall incur no costs
or
expenses therefore.
9.3
Environmental
Regulations
.
Tenant
will not cause, or permit to be caused, any act or practice, by negligence,
omission or otherwise, that would adversely affect the environment or do
anything or permit anything to be done that would violate any federal, state
or
local laws, regulations or guidelines concerning the impact on the environment
of the conduct of Tenant's business. Any violation of this covenant shall
constitute a default under this Lease.
(a)
If
Tenant
shall become aware of or receive notice or other communication concerning
any
actual, alleged, suspected or threatened violation of any environmental law,
regulation, or ordinance, or liability of Tenant for environmental damages
in
connection with the Premises or past or present activities of any person
thereon, including but not limited to notice or other communication concerning
any actual or threatened investigation, inquiry, lawsuit, claim, citation,
directive, summons, proceeding, complaint, notice, order, writ, or injunction
relating to same, then Tenant shall deliver to Landlord, within ten (10)
days of
the receipt of such notice or communication, by Tenant, a written description
of
said violation, liability, or actual or threatened event or condition, together
with copies of any documents evidencing same. Receipt of such notice shall
not
be deemed to create any obligation on the part of Landlord to defend or
otherwise respond to any such notification.
(b)
Notwithstanding
the obligation of Tenant to indemnify Landlord pursuant to this Lease Agreement,
Tenant shall, upon demand of Landlord, and at its sole cost and expense,
promptly take all actions to remediate any environmental damages caused by
Tenant. Tenant shall proceed continuously and diligently with such remediation,
provided that in all cases such actions shall be in accordance with all
applicable requirements of governmental entities. Any such actions shall
be
performed in a good, safe and workmanlike manner and shall minimize any impact
on the businesses conducted at the property of which the Premises are a part.
Should Tenant fail to perform or observe any of its obligations or agreements
pertaining to remediation of environmental damage, then Landlord shall have
the
right, but not the duty, without limitation upon any of the rights of Landlord
pursuant to this Lease Agreement, to perform the same, either personally
or
through its agents, consultants or contractors.
(c)
Tenant
shall indemnify and hold Landlord its principals, agents or employees harmless
from any and all claims, including all costs, expenses and attorney's fees,
by
or on behalf of any person, entity or governmental agency arising from any
breach or default on the part of Tenant in the performance of the covenant
contained in this paragraph 3. In case any action or proceeding is brought
against Landlord its principals, agents or employees by reason of any such
claim, Tenant, upon written notice from Landlord, covenants to resist or
defend,
at Tenant's expense, such action or proceeding by counsel reasonably
satisfactory to Landlord.
(d)
If
Landlord pays any amount for remediation of substances introduced onto the
Premises the building of which the Premises are a part, or their surrounding
environs by Tenant in violation of the covenant contained in this section,
including detection, removal or confinement of such substances, then the
sum so
paid, together with all costs and attorney's fees, shall be paid by Tenant
to
Landlord as additional rent within thirty (30) days of written notice to
Tenant
of such expenditures.
9.4
Indemnity
.
(a)
Tenant
shall indemnify and hold Landlord harmless against and from any and all claims
arising from Tenant's use of the Premises or from the conduct of its business
or
from any activity, work or other things done, permitted or suffered by Tenant
in
or about the Premises, and shall further indemnify and hold Landlord harmless
against and from any and all claims arising from any breach or default in
the
performance of any obligation on Tenant's part to be performed under the
terms
of this Lease, or arising from any act or negligence of Tenant, or any officer,
agent, employee, guest or invitee of Tenant, and from all costs, attorneys'
fees, and liabilities incurred in or about the defense of any such claim
or any
action or proceeding brought thereon, and in case any action or proceeding
be
brought against Landlord by reason of such claim, Tenant upon notice from
Landlord shall defend the same at Tenant's expense by counsel reasonably
satisfactory to Landlord. Tenant, as a material part of the consideration
to
Landlord, hereby assumes all risk of damage to property or injury to persons
upon the Premises, from any cause other than the negligence of Landlord,
its
agents, servants or employees, and Tenant hereby waives all claims in respect
thereof against Landlord. Tenant shall give prompt notice to Landlord in
case of
casualty or accidents in the Premises.
(b)
Landlord
or its agents shall not be liable for any loss or damage to persons or property
resulting from fire, explosion, steam, gas, electricity, water or rain which
may
leak from any part of the building or from the pipes, appliances or plumbing
therein or from the roof, street or subsurface or from any other place resulting
from dampness or any other cause whatsoever, unless caused by or due to the
negligence of Landlord, its agents, servants or employees.
9.5
Damage
to Premises
.
Tenant
shall not damage nor permit any damage to any portion of the Premises, and
at
the termination of this Lease, Tenant shall deliver the Premises to Landlord
in
as good condition as existed at the commencement date of this Lease, ordinary
wear and tear and damage by casualty that is covered by Landlord's insurance
excepted. The cost and expense of any repairs necessary to restore the condition
of the Premises shall be borne by Tenant, and if Landlord undertakes to restore
the Premises it shall have a right of reimbursement against Tenant.
9.6
Liens
and Encumbrances
.
Tenant
shall pay before delinquency all costs for work done or caused to be done
by
Tenant in the Premises which could result in any lien or encumbrance on
Landlord's interest in the Premises or any part thereof. If any such lien
or
encumbrance is filed against the Premises or the Property and Tenant shall
fail
to cause such lien to be discharged of record within thirty (30) days after
Tenant receives written notice of its filing, whether by payment or posting
of a
statutory surety bond with the appropriate court, Landlord may, at its option,
pay such charge and related costs and interest, and the amount paid, together
with reasonable attorney's fees incurred by Landlord, shall be immediately
due
from Tenant to Landlord.
9.7
Alterations
and Improvements
.
Tenant
shall not make any alterations or improvements to the Premises without
Landlord's prior written approval which approval shall not be unreasonably
withheld. Any alterations or improvements to the Premises made by Tenant
shall
be at Tenant's expense and, with the exception of trade fixtures installed
by
Tenant, shall become the property of Landlord and shall be surrendered to
Landlord upon termination of this Lease. Landlord, at its option, may require
Tenant to remove any physical additions and repair any alterations to which
Landlord has not previously consented in accordance with this subparagraph,
in
order to restore the Premises to the condition existing at the time Tenant
took
possession thereof. All costs of such removal and repair shall be borne by
Tenant.
9.8
Janitorial
Service
.
Tenant
shall provide, at Tenant's sole expense, janitorial or cleaning service for
the
Premise which shall clean the Premises in a manner satisfactory to
Landlord.
9.9
Non-Smoking
Environment
.
Tenant
shall maintain a smoke free environment within the Premises and all common
areas
of the building and shall not smoke or permit smoking of cigarettes, pipes,
cigars or other tobacco products within the Premises or the common areas
of the
building.
10.
Landlord's
Covenants.
10.1
Services
Provided
.
So long
as Tenant is not in default under any of the covenants of this Lease to be
performed by Tenant, Landlord shall provide the following services:
(a)
Heat
for
the Premises when and as reasonably required for comfortable occupancy of
the
Premises, and air conditioning for the Premises when and as reasonably required
for comfortable occupancy of the Premises, on business days from 8:00 a.m.
to
6:00 p.m. (if Tenant requires air conditioning for more extended hours or
on
Saturdays, Sundays or on holidays, Landlord will furnish the same at Tenant's
expense);
(c)
Water
and
sewer service for ordinary lavatory and toilet purposes;
(d)
Janitorial
service and maintenance of the common areas, parking areas and landscaping,
which shall include window cleaning, inside and outside, twice in each lease
year,
(e)
Electricity
sufficient for Tenant's permitted uses of the Premises;
10.2
Service
Interruption
.
Landlord shall not be liable for the interruption of heating, plumbing, air
conditioning, electrical systems, or cleaning or other services, if any,
by
causes beyond Landlord's control or when necessary by reason of accident
or for
repairs, alterations, replacements, or improvements necessary or desirable
in
the judgment of Landlord for as long as maybe reasonably required by reason
thereof. No such interruption of service shall be deemed a default by Landlord
nor shall it be deemed an eviction or disturbance of Tenant's use or quiet
enjoyment of the Premises.
10.3
Repairs
.
Landlord shall repair and maintain the structural portions of the building
in
which the Premises are located, including exterior walls and roof. Landlord
shall not be liable for failure to make such repairs or to perform any
maintenance unless such failure shall persist for an unreasonable time after
written notice of the need for such repairs or maintenance is given to Landlord
by Tenant.
10.4
Non-Smoking
Environment
.
Landlord shall include subparagraph 9.9 in all leases for the Lotus Building,
and shall make every reasonable effort to enforce such provision as to all
tenants.
11.
Personal
Property.
11.1
Abandonment
by Tenant
.
Any
property of Tenant remaining in the Premises at any time when Landlord recovers
possession of the Premises shall be deemed abandoned, and Landlord shall
have no
responsibility or liability whatsoever for any of said personal property.
Without modifying the foregoing, Landlord may store any of such property
in any
public or private warehouse, and Tenant shall pay to Landlord promptly upon
demand all costs incurred in connection with such property, including the
costs
of moving and storage, court costs, and attorneys' fees. Landlord may, at
its
option, without notice, sell any such personal property at any public or
private
sale for such prices as Landlord may obtain, and Landlord shall apply the
proceeds of such sale first to the costs incurred in the connection with
such
property, and then to any amounts due under this Lease from Tenant to Landlord,
and the surplus, if any, to Tenant.
11.2
Landlord's
Lien
.
Tenant
hereby grants to Landlord a lien upon and a security interest in all property
now owned or hereafter acquired by Tenant which shall come in or be placed
upon
the Premises, to secure the payment of rent and the performance of each and
every other obligation hereunder to be performed by Tenant. Following any
event
of default, Landlord, without notice or demand, may take possession of and
sell
such property at public and private sale upon giving Tenant ten (10) days'
notice. The proceeds of any such sale shall be applied first to the payment
of
expenses thereof, second to the discharge of the unpaid rent or other liability
hereunder, and the balance, if any, shall be paid to Tenant. Tenant agrees
to
execute and record any financing statements and other documents necessary
to
perfect or record the lien herein granted. Failure to obtain execution or
to
record financing statements by the Landlord shall have no effect upon the
granted herein.
11.3
Personal
Property Tax
.
Tenant
shall pay, or cause to be paid, before delinquency any and all taxes levied
or
assessed and which become payable during the term hereof upon all Tenant's
leasehold improvements, equipment, furniture, fixtures, and any other property
located in the Premises. In the event any or all of Tenant's leasehold
improvements, equipment, fixtures, furniture and other personal property
shall
be assessed and taxed with the real property, Tenant shall pay to Landlord
its
share of such taxes within ten (10) days after delivery to Tenant by Landlord
of
a statement in writing setting forth the amount of such taxes applicable
to
Tenant's property.
12.
Entry
Upon Premises By Landlord.
After
giving reasonable notice to Tenant, which need not be in writing, Landlord
and
its representatives may enter the Premises at any reasonable time, for the
purpose of inspecting the Premises, performing any work which Landlord may
reasonably elect to undertake or which is made necessary by reason of Tenant's
default under the terms of this Lease, or exhibiting the Premises for sale,
lease or mortgage financing, or any other reasonable purpose. Tenant hereby
waives any claim for damages or for any injury or inconvenience to or
interference with Tenant's business, loss of occupancy or quiet enjoyment
of the
Premises, or any other loss occasioned thereby. For each of the aforesaid
purposes, Landlord shall at all times have and retain a key with which to
unlock
all of the doors in, upon and about the Premises.
13.
Damage
to
Premises.
In the
event that without negligence or willful misconduct of Tenant or its employees,
agents, or licensees, the Premises are damaged by fire or other casualty
to such
extent that the Premises are rendered substantially inaccessible or unusable
for
office purposes then either Landlord or Tenant shall have the option to
terminate this Lease, provided that the party wishing to terminate this Lease
must give written notice of termination to the other party within thirty
(30)
days after the date upon which such damage occurs or the option to terminate
shall be void. In the event that either party exercises the option to terminate,
this Lease shall be deemed to terminate on the third day after the giving
of
said notice, and Tenant shall surrender possession within ten (10) days
thereafter. In the event neither party exercises the aforesaid option to
terminate this Lease, Landlord, at its expense, shall repair the damage with
reasonable dispatch, restoring the Premises as nearly as possible to its
condition prior to such damage and all Base Rent and Additional Rent payable
hereunder shall abate from the date the damage occurred until such time as
the
Premises have been entirely repaired and restored. Any disbursement of insurance
proceeds by a holder of a deed of trust shall be deemed to have been made
by
Landlord. In determining what constitutes reasonable dispatch, consideration
shall be given to delays caused by strikes, adjustment of insurance, and
other
causes beyond Landlord's control. Notwithstanding the foregoing provision,
in
the event the Premises are damaged by fire or other insured casualty due
to the
negligence or willful misconduct of Tenant, or the employees, agents or
licensees of Tenant then without prejudice to any other rights and remedies
of
Landlord or its insurer, the damage shall be repaired as provided above.
Tenant,
however, shall not be relieved of any liability for any damage to the Premises
caused by any negligence or willful misconduct of Tenant or its employees,
agents or licensees.
14.
Liability
Insurance.
At all
times Tenant shall, at Tenant's expense, keep in full force and effect a
policy
of comprehensive public liability insurance, with a company acceptable to
Landlord, insuring Landlord and Tenant against any liability arising out
of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be in an amount not less than
$1,000,000.00 for injury or death of one person in any one accident or
occurrence, and in an amount not less than $1,000,000.00 for injury or death
of
more than one person in any one accident or occurrence. Such insurance shall
further insure Landlord and Tenant against liability for property damage
in an
amount not less than $500,000.00. The limit of any such insurance shall not,
however, limit the liability of Tenant under this Lease. Tenant shall deliver
to
Landlord copies of the policies of insurance required herein or certificates
evidencing the existence and amounts of such insurance with loss payable
clauses
satisfactory to Landlord.
15.
Quiet
Enjoyment.
Tenant,
upon payment of the required rents and performing the terms, conditions,
covenants and agreements contained in this Lease, shall peaceably and quietly
hold and enjoy the Premises during the full term of this Lease. Landlord
shall
reasonably endeavor to insure Tenant's quiet enjoyment, but Landlord shall
not
be responsible for the acts or omissions of any third party that may interfere
with Tenant's use and enjoyment of the Premises, so long as such acts or
omissions of such third party are beyond Landlord's control.
16.
Assignment
and Subletting.
16.4
Assignment
by Landlord
.
Landlord and owner shall have the right to transfer and assign, in whole
or in
part., right, title and interest in the Premises and its rights and obligations
in and under this Lease. Landlord and owner shall be released from all
obligations from the date of transfer, except for obligations as related
to the
period of time from the commencement date to the date of transfer and provided
that Landlord or owner shall transfer Tenant's security deposit to its
transferee and that such transferee agrees in writing to assume Landlord's
or
owner's obligation to hold such security deposit consistent with the terms
of
this Lease.
16.5
Assignment
by Tenant
.
Tenant
shall not assign this Lease or any interest therein, or sublet all or any
part
of the Premises without the prior written consent of Landlord, which consent
shall not be unreasonably withheld; provided, however, that as a condition
of
giving such consent:
(a)
Landlord
shall have the right to make reasonable inquiry into the financial qualification
of any proposed subtenant or assignee to operate a business enterprise upon
the
Premises, and to perform a lease agreement therefor, and Landlord's obligation
to permit assignment of this Lease or a sublease is contingent upon Landlord's
approval of the proposed subtenant's or assignee's financial qualification.
"Reasonable inquiry" may include, without limitation, requiring any prospective
subtenant or assignee to supply to Landlord current and complete financial
statements and credit reports.
(b)
Upon
Tenant's application for Landlord's consent to assignment or sublease, Landlord
shall have the option to charge Tenant an administrative charge, not to exceed
$500.00, to reimburse Landlord for its costs in reviewing Tenant's application
for such assignment or sublease and making any inquiry related thereto. In
addition, and as a condition of Landlord's approval, Tenant shall reimburse
Landlord for any attorney fees incurred by Landlord in review or negotiation
of
any assignment or sublease.
(c)
If
Tenant
is a corporation or a partnership, an assignment, as that term is used herein,
includes one or more sales or transfers by which an aggregate of more than
50%
of Tenant's shares or partnership interests shall be vested in a party or
parties who are not shareholders or partners as of the date of this Lease.
For
purposes of this paragraph, share and partnership interest ownership shall
be
determined in accordance with the principles set forth in Section 544 of
the
Internal Revenue Code.
(d)
Without
modifying the foregoing provisions of subparagraph 16.2, Landlord will permit
the assignment of this lease to an entity owned or controlled by the individuals
identified as Tenant in the preamble of this Lease, provided that Tenant
makes
written application for consent to such assignment accompanied by documentation
sufficient for Landlord to determine that such entity legally exists and
is
owned or controlled by said individuals.
16.6
Continuing
Liability
.
Notwithstanding any sublease or assignment of this Lease, Tenant shall remain
liable under all of the provisions and conditions of this Lease for the
remaining term of the Lease.
17.
Default
by Tenant.
17.7
Events
of Default
.
The
following shall be deemed to be events of default by Tenant under this
Lease:
(a)
Failure
by Tenant to pay when due any installment of Base Rent, Additional Rent,
or any
other sum payable by Tenant under this Lease.
(b)
Abandonment
by Tenant of the Premises for a period of thirty (30) consecutive days except
following damage to, or destruction of the Premises;
(c)
Failure
by Tenant to comply with any term, provision or covenant of this Lease, other
than the payment of rent, and the failure is not cured within ten (10) days
after written notice to Tenant; provided, however, that if such default shall
be
of such a nature that the same cannot be cured or remedied within such ten
(10)
day period, then Tenant shall not be deemed to be in default hereunder if
within
such ten (10) day period Tenant shall commence to cure such default and shall
thereafter diligently and in good faith proceed to cure such
default.
17.8
Remedies
for Tenant's Default
.
Upon
the occurrence of any event of default, Landlord shall have the
option:
(a)
To
terminate this Lease; or
(b)
Terminate
Tenant's right to possession of the Premises and re-enter or repossess the
Premises, either by legal proceeding, surrender or otherwise, and dispossess
and
remove therefrom Tenant or other occupants thereof and their effects without
being liable to any prosecution or civil damages. Landlord shall use its
best
efforts to rerent the Premises at such rental and upon such other terms and
conditions as Landlord may deem advisable in its reasonable discretion. However,
Tenant shall remain liable under the terms of this Lease, and Tenant's
obligations including the obligation to pay rent shall continue for the full
term of this Lease, provided, however, that Tenant shall receive appropriate
credit for amounts received by Landlord as a result of any
rerenting.
17.9
Waiver
of Default or Remedy
.
Failure
of Landlord to declare an event of default immediately upon its occurrence,
or
delay in taking any action in connection with an event of default, shall
not
constitute a waiver of the default, but Landlord shall have the right to
declare
the default at any time and take such action as is lawful or authorized under
this Lease. Failure by Landlord to enforce the remedy provided upon an event
of
default shall not be deemed or construed to constitute a waiver of the default
or of any other violation or breach of any of the terms, provisions and
covenants contained in this Lease.
18.
Force
Majeure.
In the
event Landlord or Tenant shall be delayed or hindered in or prevented from
performing any of the agreements, provisions or covenants required hereunder
by
restrictive governmental laws or regulations, riots, insurrection, war or
other
reason of a like nature not the fault of Landlord or Tenant, in performing
work
or doing acts required under the terms of this Lease, then performance of
such
act shall be extended for a period equivalent to the period of such
delay.
19.
Holding
Over.
In the
event of holding over by Tenant after the expiration or termination of this
Lease, the holdover shall be as a month to month tenancy and all of the terms
and provisions of this Lease shall be applicable during that period, except
that
Tenant shall pay Landlord as rental for the period of such hold over an amount
equal to one hundred twenty percent (120%) of the rent and additional rent
which
would have been payable by Tenant had the holdover period been a part of
the
original term of this Lease, including any adjustments made during the lease
term. Tenant agrees to vacate and deliver the Premises to Landlord upon Tenant's
receipt of notice from Landlord to vacate. The rent payable during the holdover
period shall be payable to Landlord on demand. No holding over by Tenant,
whether with or without consent of Landlord, shall operate to extend this
Lease
except as otherwise expressly provided in this Lease. In the event Tenant
fails
to surrender the Premises upon termination or expiration of this Lease, then
Tenant shall indemnify Landlord against loss or liability resulting from
any
delay by Tenant in surrendering the Premises, including, but not limited
to, any
amounts required to be paid to third parties which were to have occupied
the
Premises and any reasonable attorney's fees related thereto.
20.
Condemnation.
20.10
Taking
of Premises
.
If,
during the term of this Lease, all or a substantial part of the Premises
are
condemned or taken for any public or quasi-public use by any public authority,
under any law, ordinance or regulation, by right of eminent domain or purchase
in lieu thereof, then this Lease shall terminate upon the date when possession
is taken by such public authority.
20.11
Partial
Taking
.
In the
event a portion of the Premises or the portion of the parking area currently
paved, adjacent to the Building and located on the Property, shall be taken
for
any public or quasi-public use by any public authority, under any law, ordinance
or regulation, or by right of eminent domain or by purchase in lieu thereof,
this Lease shall be voidable in the discretion of either party provided that
the
party wishing to terminate the Lease must give written notice of termination
within thirty (30) days after Tenant is given notice of Landlord's consent
to
the taking or the entry of an order for the taking by a court of competent
jurisdiction. The Lease shall terminate upon the date when possession of
the
Premises is taken by the public authority.
20.12
Condemnation
Proceeds
.
All
compensation awarded or paid upon such a total or partial taking of the Premises
by condemnation shall belong to and be the property of Landlord; provided,
however, that nothing contained herein shall be construed to preclude Tenant
from prosecuting any claim directly against the condemning authority in such
condemnation proceeding for loss of the leasehold, business, or depreciation
to,
damage to, or cost of removal of, or for the value of stock, trade fixtures,
equipment, furniture, and other personal property belonging to Tenant. Landlord
and Tenant hereby agree to cooperate in the joint prosecution of their claims
against the condemning authority.
21.
Miscellaneous
Provisions.
21.13
Applicable
Law and Construction
.
This
Lease and the rights, duties and obligations hereunder shall be controlled
by
the laws of the State of Colorado. The singular shall include the plural
and the
plural shall include the singular as appropriate. Any reference to gender
shall
include all genders as appropriate. The titles and headnotes of paragraphs
and
subparagraphs of this Lease are for reference only, are not intended as an
interpretation, and shall not affect or change the context or meaning of
this
Lease.
21.14
Parties
Bound
.
All
covenants and agreements contained in this Lease shall extend to, be binding
upon and inure to the benefit of the parties to this Lease and their respective
heirs, personal representatives, successors, legal representatives and
assigns.
21.15
Severability
.
The
invalidity or unenforceability of any provision of this Lease shall not affect
or impair the validity or enforceability of any other provision in this
Lease.
21.16
Notices
.
Whenever any notice is required or permitted hereunder, such notice shall
be in
writing unless otherwise specifically provided. Except as required or permitted
under applicable law, any notice or document required to be delivered hereunder
shall be deemed to be given and delivered four (4) days after it is deposited
in
the United States Mail, certified mail, Return Receipt Requested, addressed
to
the Landlord at the address set forth at subparagraph 5.1(i) and to Tenant
at
the Premises, or at such other addresses as either party has specified by
written notice delivered in accordance herewith.
21.17
Attorney
Fees
.
In the
event either party initiates legal action due to the other party's breach
of any
covenant, condition or agreement contained in this Lease, the prevailing
party
in such legal action shall be entitled to recover from the losing party all
of
the prevailing party's reasonable costs, expenses and attorney fees incurred
in
relation to such legal action.
21.18
Entire
Agreement
.
This
Lease contains the entire agreement of the parties, and there are no
representations, warranties, agreements, promises or understandings, either
oral
or written, between them, except such as are expressly set forth in this
Lease.
Tenant represents and agrees that it has not relied upon any statements,
representations, warranties, agreements or promises made by Landlord, or
anyone
acting or claiming to be acting on Landlord's behalf, with respect to this
Lease
or the Premises, including, without limitation, its size or physical
condition.
21.19
Modification
.
This
Lease may not be altered, waived, amended or extended except by an instrument
in
writing signed by the party or parties to be bound thereby.
21.8
Bathroom
Access
.
Notwithstanding any other provision of this Lease to the contrary, Tenant
agrees
to permit use of the bathroom facility within the Premises on the date of
this
Lease which has been modified to provide access to persons with disabilities
by
all persons using the building on business days from 9:00 a.m. to 5:00 p.m.
including other tenants and their employees, customers, clients and
patrons.
WHEREFORE,
the parties execute this Lease effective on the date set forth in the preamble
on page 1 of this Lease.
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Landlord:
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Tenant:
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United
Professional Management, Inc.
|
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AeroGrow
International Inc.
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/s/
Trent Cole
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/s/
Michael Bissonnette
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By:
Trent Cole, President
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By:
Michael Bissonnette
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EXHIBIT
10.2
AEROGROW
INTERNATIONAL, INC.
2003
AMENDED STOCK OPTION PLAN
WHEREAS,
AeroGrow International, Inc., a Nevada corporation, desires to award incentive
and nonqualified stock options to certain of its officers, other key employees
(including key employees who are directors), non-employee directors and
consultants in the Company;
NOW
THEREFORE, the AeroGrow International, Inc., 2003 Stock Option Plan is hereby
adopted, amended on August 3, 2005 to be effective as of the first grant
of
options hereunder, under the following terms and conditions:
1.
Purpose
This
AeroGrow International, Inc., 2003 Stock Option Plan (the "Plan") is intended
to
provide a means whereby AeroGrow International, Inc., (the "Company") may,
through the grant of incentive stock options and nonqualified stock options
(collectively, the "Options") to purchase common shares of the Company ("Common
Stock") to officers, other key employees (including key employees who are
directors), non-employee directors of the Company and consultants of the
Company
(collectively "Key Individuals") attract and retain such Key Individuals
and
motivate them to exercise their best efforts on behalf of the Company and
of any
related corporation ("Related Corporation"), as defined below.
For
purposes of the Plan, a Related Corporation shall mean either a "subsidiary
corporation" of the Company, as defined in section 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code"), or the "parent corporation"
of
the Company, as defined in section 424(e) of the Code. Further, as used in
the
Plan, (i) the term "incentive stock option" ("ISO") shall mean an option
which,
at the time such option is granted under the Plan, qualifies as an ISO within
the meaning of section 422 of the Code and is designated as an ISO in the
"Option Agreement" (as defined in Section 8 hereof); and (ii) the term
"nonqualified stock option" ("NQSO") shall mean an option which, at the time
such option is granted, does not qualify as an ISO, and is designated as
an NQSO
in the Option Agreement.
2.
Administration
The
Plan
shall be administered by the Company's Stock Option Committee (the "Committee"),
if the Board chooses to appoint such a Committee. If appointed, the Committee
shall consist of not less than three directors of the Company who shall be
appointed by, and shall serve at the pleasure of, the Company's Board of
Directors (the "Board"). Each member of the Committee, while serving as such,
shall be deemed to be acting in his capacity as a director of the Company.
If
the Board chooses not to appoint such a Committee, the Plan shall be
administered by the Board itself and references in this Plan to "Committee"
shall be read as references to the Board.
The
Committee shall have full authority, subject to the terms of the Plan, to
select
the Key Individuals to be granted ISOs and/or NQSOs under the Plan, to grant
Options on behalf of the Company, and to set the date of grant and the other
terms of such Options. The Committee also shall have the authority to establish
such rules and regulations, not inconsistent with the provisions of the Plan,
for the proper administration of the Plan, and to amend, modify, or rescind
any
such rules and regulations, and to make such determinations, and interpretations
under, or in connection with, the Plan, as it deems necessary or advisable.
All
such rules, regulations, determinations, and interpretations shall be binding
and conclusive upon the Company, its stockholders and its employees and
directors, and upon their respective legal representatives, beneficiaries,
successors, and assigns and upon all other persons claiming under or through
any
of them.
No
member
of the Board or the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Option granted under
it.
3.
Eligibility
The
class
of employees, directors and consultants who shall be eligible to receive
Options
under the Plan shall be the Key Individuals of the Company and/or of a Related
Corporation. More than one Option may be granted to a Key Individual under
the
Plan.
4.
Stock
Options
may be granted under the Plan to purchase up to a maximum of 400,000 shares
of
the Company's Common Stock, $.001 par value, subject to adjustment as
hereinafter provided. Shares issuable under the Plan may be authorized but
unissued shares or reacquired shares, and the Company may purchase shares
required for this purpose, from time to time, if it deems such purchase to
be
advisable.
If
any
Option granted under the Plan expires or otherwise terminates for any reason
whatever (including, without limitation, the Key Individual's surrender thereof)
without having been exercised, the shares subject to the unexercised portion
of
the Option shall continue to be available for the granting of Options under
the
Plan as fully as if the shares had never been subject to an Option.
Shares
issued as ISOs under the Plan and Option, shall be expressly subject to the
Shareholder Agreement, attached hereto as Exhibit "A" and by this reference
incorporated herein, until such time that the Company has closed a firmly
underwritten public offering of shares pursuant to a registration statement
filed under the Securities Act of 1933, as amended, whereby such Shareholder
Agreement and restrictions therein shall lapse. Shares issued as NQSOs shall
be
subject to the same restrictions in the Shareholder Agreement, unless at
the
time of grant, the Board, in its sole and absolute discretion determines
that
the Option can authorize issuance of the Shares without restriction, or shall
be
issued subject to the restrictions of a different stock restriction agreement
adopted by the Board at that time. Notwithstanding anything to the contrary,
the
Key Individual may not sell, assign, transfer, pledge, hypothecate or otherwise
dispose of or encumber Shares, or any interest therein, unless he or she
has
complied with all applicable requirements of the Securities Act of 1933 and
applicable state securities laws, in addition to the all of the restrictions
described herein.
5.
Granting
of Options
From
time
to time until the expiration or earlier suspension or discontinuance of the
Plan, the Committee may, on behalf of the Company, grant to Key Individuals
under the Plan such Options as it determines are warranted; provided, however,
the Key Individuals who are nonemployee directors may not be granted ISOs
and
that grants of ISOs and NQSOs shall be separate and not in tandem. In making
any
determination as to whether a Key Individual shall be granted an Option and
as
to the number of shares to be covered by such Option, the Committee shall
take
into account the duties of the Key Individual, his present and potential
contributions to the success of the Company or a Related Corporation, the
tax
implications to the Company and the Key Individual of any Options granted,
and
such other factors as the Committee shall deem relevant in accomplishing
the
purposes of the Plan. Moreover, the Committee may provide in the Option that
said Option may be exercised only if certain conditions, as determined by
the
Committee, are fulfilled.
As
to any
Key Individual under consideration for the grant of an Option hereunder,
the
Board in its discretion may direct that the grant of the Option, or its
effective date of grant, shall be delayed until the date that the Company
obtains a permit to issue stock under this Plan and Option from the State
of
Colorado (if it is determined by the Board that such permit is
required).
Subject
to the terms and conditions of this Plan and the Option Agreement between
the
Company and Key Individual, Options granted as ISOs under the Plan and Option,
shall be subject to the Shareholder Agreement, attached hereto as Exhibit
"A"
and by this reference incorporated herein, until such time that the Company
has
closed a firmly underwritten public offering of shares pursuant to a
registration statement filed under the Securities Act of 1933, as amended,
whereby such Shareholder Agreement and restrictions therein shall lapse.
Notwithstanding anything to the contrary, the Key Individual may not sell,
assign, transfer, pledge, hypothecate or otherwise dispose of or encumber
Options, or any interest therein, unless he or she has complied with all
applicable requirements of the Securities Act of 1933 and applicable state
securities laws, in addition to the all of the restrictions described
herein.
6.
Annual
Limit
(a)
ISOs
The
aggregate fair market value (determined as of the date the ISO is granted)
of
the Common Stock with respect to which ISOs are exercisable for the first
time
by a Key Individual during any calendar year (under this Plan and any other
ISO
plan of the Company or a Related Corporation) shall not exceed $100,000.
If an
Option intended as an ISO is granted to a Key Individual and such Option
may not
be treated in whole or in part as an ISO pursuant to the $100,000 limitation,
such Option shall be treated as an ISO to the extent that it may be so treated
under such limitation and as a NQSO as to the remainder. For purposes of
determining whether an ISO would cause such limitation to be exceeded, ISOs
shall be taken into account in the order granted.
(b)
NQSOs
The
annual limits set forth above for ISOs shall not apply to NQSOs.
7.
Terms
and Conditions of Options
The
Options granted pursuant to the Plan shall expressly specify whether they
are
ISOs or NQSOs. In addition, the Options granted pursuant to the Plan shall
include expressly or by reference the following terms and conditions, as
well as
such other provisions not inconsistent with the provisions of this Plan and,
for
ISOs granted under this Plan, the provisions of section 422(b) of the Code,
as
the Committee shall deem desirable.
(a)
Number
of Shares
The
Option shall state the number of shares to which the Option
pertains.
(b)
Price
The
Option shall state the Option price which shall be determined and fixed by
the
Committee in its discretion but, in the case of an ISO, shall not be less
than
the higher of 100 percent (110 percent in the case of a more-than-10-percent
stockholder, as discussed in paragraph (j) below) of the fair market value
of
the optioned shares of Common Stock, or the par value thereof, on the date
the
ISO is granted and, in the case of an NQSO, shall not be less than the par
value
thereof, on the date the NQSO is granted.
The
fair
market value of the optioned shares of Common Stock shall be arrived at by
a
good faith determination of the Committee and shall be--
(1)
the
mean
between the highest and lowest quoted selling price, if there is a market
for
the Common Stock on a registered securities exchange or on an over-the-counter
market, on the date of grant;
(2)
the
weighted average of the means between the highest and lowest sales on the
nearest date before and the nearest date after the date of grant, if there
are
no sales on the date of grant but there are sales on dates within a reasonable
period both before and after the date of grant;
(3)
the
mean
between the bid and asked prices, as reported by the National Quotation Bureau
on the date of grant, if actual sales are not available during a reasonable
period beginning before and ending after the date of grant; or
(4)
if
(1)
through (3) above are not applicable, such other method of determining fair
market value as shall be authorized by the Code, or the rules or regulations
thereunder, and adopted by the Committee.
Where
the
fair market value of the optioned shares of Common Stock is determined under
(2)
above, the average of the means between the highest and lowest sales on the
nearest date before and the nearest date after the date of grant is to be
weighted inversely by the respective numbers of trading days between the
selling
dates and the date of grant (i.e., the valuation date), in accordance with
Treas. Reg. § 20.2031-2(b)(1).
(c)
Term
(1)
ISOs
.
Subject
to earlier termination as provided in paragraphs (e), (f), and (g) below
and in
Section 9 hereof, the term of each ISO shall be not more than 10 years (five
years in the case of a more-than-l0-percent stockholder, as discussed in
paragraph (j) below) from the date of grant.
(2)
NQSOs
.
Subject
to earlier termination as provided in paragraphs (e), (f), and (g) below
and in
Section 9 hereof, the term of each NQSO shall be not more than 10 years from
the
date of grant.
(d)
Exercise
Options
shall be exercisable in such installments and on such dates as the Committee
may
specify; provided that the Committee may accelerate the exercise date of
any
outstanding Options, in its discretion, if it deems such acceleration to
be
desirable. Any Option shares, the right to the purchase of which has accrued,
may be purchased at any time up to the expiration or termination of the Option.
Exercisable Options may be exercised, in whole or in part, from time to time
by
giving written notice of exercise to the Company at its principal office,
specifying the number of shares to be purchased and accompanied by payment
in
full of the aggregate Option price for such shares. Only full shares shall
be
issued under the Plan, and any fractional share which might otherwise be
issuable upon exercise of an Option granted hereunder shall be
forfeited.
The
Option price shall be payable in cash or by personal check, bank draft or
postal
or express money order.
(e)
Termination
of Employment
If
a Key
Individual's employment by the Company (and Related Corporations) or, for
non-employee directors, service as a director, is terminated by either party
prior to the expiration date fixed for his Option for any reason other than
death or disability, such Option may be exercised, to the extent of the number
of shares with respect to which the Key Individual could have exercised it
on
the date of such termination, or to any greater extent permitted by the
Committee, by the Key Individual at any time prior to the earlier of (i)
the
expiration date specified in such Option, or (ii) an accelerated termination
date determined by the Committee, in its discretion and set forth in the
Option
Agreement; except that, subject to Section 9 hereof, such accelerated
termination date shall not be earlier than the date of the Key Individual's
termination of employment or cessation of service as a director, and in the
case
of ISOs, such accelerated termination date shall not be earlier than three
(3)
months after such termination of employment.
(f)
Exercise
upon Disability of Key Individual
If
a Key
Individual becomes disabled (within the meaning of section 22(e)(3) of the
Code)
during his employment or service as a non-employee director and, prior to
the
expiration date fixed for his Option, his employment or service as a
non-employee director is terminated as a consequence of such disability,
such
Option may be exercised, to the extent of the number of shares with respect
to
which the Key Individual could have exercised it on the date of such
termination, or to any greater extent permitted by the Committee, by the
Key
Individual at any time prior to the earlier of (i) the expiration date specified
in such Option, or (ii) an accelerated termination date determined by the
Committee, in its discretion, and set forth in the Option Agreement; except
that, subject to Section 9 hereof, such accelerated termination date shall
not
be earlier than the date of the Key Individual's termination of employment
or
cessation of service as a non-employee director by reason of disability,
and in
the case of ISOs, such accelerated termination date shall not be earlier
than
six (6) months after such termination of employment. In the event of the
Key
Individual's legal disability, such Option may be so exercised by the Key
Individual's representative.
(g)
Exercise
upon Death of Key Individual
If
a Key
Individual dies during his employment or service as a non-employee director,
and
prior to the expiration date fixed for his Option, or if a Key Individual
whose
employment or service as a non-employee director is terminated for any reason,
dies following his termination of employment or cessation of service as a
non-employee director but prior to the earlier of (i) the expiration date
fixed
for his Option, or (ii) the expiration of the period determined under paragraphs
(e) and (f) above and set forth in the Option Agreement, to the extent of
the
number of shares with respect to which the Key Individual could have exercised
it on the date of his death, or to any greater extent permitted by the
Committee, by the Key Individual's estate, personal representative or
beneficiary who acquired the right to exercise such Option by bequest or
inheritance or by reason of the death of the Key Individual. Such post-death
exercise may occur at any time prior to the earlier of (i) the expiration
date
specified in such Option or (ii) an accelerated termination date determined
by
the Committee, in its discretion, and set forth in the Option Agreement;
except
that, subject to Section 9 hereof, such accelerated termination date shall
not
be earlier than one year after the date of death.
(h)
Non-Transferability
No
Option
shall be assignable or transferable by the Key Individual other than by will
or
by the laws of descent and distribution, and during the lifetime of the Key
Individual, the Option shall be exercisable only by him or by his guardian
or
legal representative. If the Key Individual is married at the time of exercise
and if the Key Individual so requests at the time of exercise, the certificate
or certificates shall be registered in the name of the Key Individual and
the
Key Individual's spouse, jointly, with right of survivorship.
(i)
Rights
as a Stockholder
A
Key
Individual shall have no rights as a stockholder with respect to any shares
covered by his Option until the issuance of a stock certificate to him for
such
shares.
(j)
Ten
Percent Stockholder
If
the
Key Individual owns more than 10 percent of the total combined voting power
of
all shares of stock of the Company or of a Related Corporation at the time
an
ISO is granted to him, the Option price for the ISO shall be not less than
110
percent of the fair market value of the optioned shares of Common Stock on
the
date the ISO is granted, and such ISO, by its terms, shall not be exercisable
after the expiration of five years from the date the ISO is granted. The
conditions set forth in this paragraph shall not apply to NQSOs.
(k)
Listing
and Registration of Shares
Each
Option shall be subject to the requirement that, if at any time the Committee
shall determine, in its discretion, that the listing, registration, or
qualification of the shares of Common Stock covered thereby upon any securities
exchange or under any state or federal law, or the consent or approval of
any
governmental regulatory body, is necessary or desirable as a condition of,
or in
connection with, the granting of such Option or the purchase of shares of
Common
Stock thereunder, or that action by the Company or by the Key Individual
should
be taken in order to obtain an exemption from any such requirement, no such
Option may be exercised, in whole or in part, unless and until such listing,
registration, qualification, consent, approval, or action shall have been
effected, obtained, or taken under conditions acceptable to the Committee.
Without limiting the generality of the foregoing, each Key Individual or
his
legal representative or beneficiary may also be required to give satisfactory
assurance that shares purchased upon exercise of an Option are being purchased
for investment and not with a view to distribution, and certificates
representing such shares may be legended accordingly.
(1)
Withholding
and Use of Shares to Satisfy Tax Obligations
The
obligation of the Company to deliver shares of Common Stock upon the exercise
of
any Option (or cash in lieu thereof) shall be subject to any applicable federal,
state or local tax withholding requirements.
If
the
exercise of any Option is subject to the withholding requirements of applicable
federal tax law, the Committee, in its discretion, may permit the Key Individual
to satisfy the federal withholding tax, in whole or in part, by electing
to have
the Company withhold shares of Common Stock subject to the exercise (or by
returning previously acquired shares of Common Stock to the Company). Shares
of
Common Stock shall be valued, for purposes of this paragraph, at their fair
market value on the date the amount attributable to the exercise of the Option
is includable in income by the Key Individual under section 83 of the Code
(the
"Determination Date").
If
shares
of Common Stock acquired by the exercise of an ISO are used to satisfy the
withholding requirement described above, such shares of Common Stock must
have
been held by the Key Individual for a period of not less than the holding
period
described in section 422(a)(1) of the Code as of the Determination
Date.
The
Committee shall adopt such withholding rules as it deems necessary to carry
out
the provisions of this paragraph.
8.
Option
Agreement -- Other Provisions
Options
granted under the Plan shall be evidenced by written documents ("Option
Agreements") in such form as the Committee shall from time to time approve,
and
containing such provisions not inconsistent with the provisions of the Plan
(and, for ISOs granted pursuant to the Plan, not inconsistent with section
422(b) of the Code), as the Committee shall deem advisable. The Option
Agreements shall indicate whether the Option is an ISO or NQSO; provided,
however, if the Option is not designated in the Option Agreement as an ISO
or
NQSO, the Option shall constitute an ISO if it complies with the terms of
section 422 of the Code, and otherwise, it shall constitute an NQSO. Each
Key
Individual shall enter into, and be bound by, such an Option Agreement, as
soon
as practicable after the grant of an Option.
9.
Capital
Adjustments
The
number of shares which may be issued under the Plan, as stated in Section
4
hereof, and the number of shares issuable upon exercise of outstanding Options
under the Plan (as well as the Option price per share under such outstanding
Options), shall, in accordance with the provisions of section 424(a) of the
Code, be adjusted to reflect any stock dividend, stock split, share combination,
or similar change in the capitalization of the Company. In the event any
such
change in capitalization cannot be reflected in a straight mathematical
adjustment of the number of shares issuable upon the exercise of outstanding
Options (and a straight mathematical adjustment of the exercise price thereof),
the Committee shall make such adjustments as are appropriate to reflect most
nearly such straight mathematical adjustment. Such adjustments shall be made
only as necessary to maintain the proportionate interest of Optionees, and
preserve, without exceeding, the value of Options.
In
the
event of a corporate transaction (as that term is described in section 424(a)
of
the Code and the Treasury Regulations issued thereunder as, for example,
a
merger, consolidation, acquisition of property or stock, separation,
reorganization, or liquidation), each outstanding Option shall be assumed
by the
surviving or successor corporation; provided, however, that, in the event
of a
proposed corporate transaction, the Committee may terminate all or a portion
of
the outstanding Options if it determines that such termination is in the
best
interests of the Company. If the Committee decides to terminate outstanding
Options, the Committee shall give each Key Individual holding an Option to
be
terminated not less than seven days' notice prior to any such termination
by
reason of such a corporate transaction, and any such Option which is to be
so
terminated may be exercised (if and only to the extent that it is then
exercisable) up to, and including the date immediately preceding such
termination. Further, as provided in Section 7(d) hereof, the Committee,
in its
discretion, may accelerate, in whole or in part, the date on which any or
all
Options become exercisable.
The
Committee also may, in its discretion, change the terms of any outstanding
Option to reflect any such corporate transaction, provided that, in the case
of
ISOs, such change is excluded from the definition of a "modification" under
section 424(h) of the Code.
10.
Amendment
or Discontinuance of the Plan
(a)
In
General
The
Board, pursuant to a written resolution, from time to time may suspend or
discontinue the Plan or amend it in any respect whatsoever; except that,
without
the approval of the stockholders (given in the manner set forth in paragraph
(b)
below)--
(1)
the
class
of employees eligible to receive ISOs shall not be changed;
(2)
the
maximum number of shares of Common Stock with respect to which ISO's may
be
granted under the Plan shall not be increased, except as permitted under
Section
9 hereof; and
(3)
the
duration of the Plan under Section 16 hereof with respect to any ISO's granted
hereunder shall not be extended.
(b)
Manner
of Stockholder Approval
The
approval of stockholders must comply with all applicable provisions of the
corporate charter, bylaws, and applicable state law prescribing the method
and
degree of stockholder approval required for the issuance of corporate stock
or
options. If the applicable state law does not prescribe a method and degree
of
stockholder approval in such case, the approval of stockholders must
occur--
(1)
By
a
method and in a degree that would be treated as adequate under applicable
state
law in the case of an action requiring stockholder approval (i, e., an action
on
which stockholders would be entitled to vote if the action were taken at
a duly
held stockholders' meeting); or
(2)
By
a
majority of the votes cast at a duly held stockholders' meeting at which
a
quorum representing a majority of all outstanding voting stock is, either
in
person or by proxy, present and voting on the Plan.
11.
Absence
of Rights
Neither
the adoption of the Plan nor any action of the Board or the Committee shall
be
deemed to give any individual any right to be granted an Option, or any other
right hereunder, unless and until the Committee shall have granted such
individual an Option, and then his rights shall be only such as are provided
by
the Option Agreement.
Any
Option under the Plan shall not entitle the holder thereof to any rights
as a
stockholder of the Company prior to the exercise of such Option and the issuance
of the shares pursuant thereto. Further, notwithstanding any provisions of
the
Plan or the Option Agreement with a Key Individual who is an employee of
the
Company, the Company and any Related Corporation shall have the right, in
its
discretion but subject to any employment contract entered into with the Key
Individual, to retire the Key Individual at any time pursuant to its retirement
rules or otherwise to terminate his employment at any time for any reason
whatsoever.
12.
Indemnification
of Board and Committee
Without
limiting any other rights of indemnification which they may have from the
Company and any Related Corporation, the members of the Board and the member
of
the Committee shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any claim, action, suit, or
proceeding to which they or any of them may be a party by reason of any action
taken or failure to act under, or in connection with, the Plan, or any Option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by legal counsel selected by the Company)
or paid by them in satisfaction of a judgment in any such action, suit, or
proceeding, except a judgment based upon a finding of willful misconduct
or
recklessness on their part. Upon the making or institution of any such claim,
action, suit, or proceeding, the Board or Committee member shall notify the
Company in writing, giving the Company an opportunity, at its own expense,
to
handle and defend the same before such Board or Committee member undertakes
to
handle it on his own behalf.
13.
Application
of Funds
The
proceeds received by the Company from the sale of Common Stock pursuant to
Options granted under the Plan shall be used for general corporate purposes.
Any
cash received in payment for shares upon exercise of an Option to purchase
Common Stock shall be added to the general funds of the Company and shall
be
used for its corporate purposes.
14.
Stockholder
Approval
This
Plan
shall become effective on the later of January 2, 2003 (the date the Plan
was
adopted by the Board); provided, however, that if the Plan is not approved
by
the stockholders, in the manner described in Section 10(b) hereof, within
12
months before or after the date the Plan was adopted by the Board, ISO's
granted
hereunder shall be null and void and no additional Options shall be granted
hereunder. The Plan shall remain effective as to NQSOs.
15.
No
Obligation to Exercise Option
The
granting of an Option shall impose no obligation upon a Key Individual to
exercise such Option.
16.
Termination
of Plan
Unless
earlier terminated as provided in the Plan, the Plan and all authority granted
hereunder shall terminate absolutely at 12:00 midnight on January 1, 2013,
which
date is within 10 years after the date the Plan was adopted by the Board,
or the
date the Plan was approved by the stockholders of the Company, whichever
is
earlier, and no Options hereunder shall be granted thereafter. Nothing contained
in this Section, however, shall terminate or affect the continued existence
of
rights created under Options issued hereunder, and outstanding on the date
set
forth in the preceding sentence, which by their terms extend beyond such
date.
17.
Governing
Law
The
Plan
shall be governed by the applicable Code provisions to the maximum extent
possible. Otherwise, the laws of the State of Colorado shall govern the
operation of, and the rights of Key Individuals under, the Plan, and Options
granted thereunder.
EXHIBIT
10.3
STOCK
OPTION AGREEMENT
RELATING
TO THE
AEROGROW
INTERNATIONAL, INC.
2003
STOCK OPTION PLAN
This
Stock Option Agreement (“Option Agreement”) dated effective as of the ______ day
of ______________ 200_ ("Effective Date"), is between AeroGrow International,
Inc., a Nevada corporation (the "Company"), and ______________________ (the
"Optionee").
RECITALS
WHEREAS,
the Company has adopted the AeroGrow International, Inc. 2003 Stock Option
Plan,
as amended (the "Plan"), for the purpose of providing officers, other key
employees (including key employees who are directors), non-employee directors,
and consultants of the Company with options to purchase shares of the Company’s
common stock to attract and retain such individuals and motivate them to
exercise their best efforts on behalf of the Company; and
WHEREAS,
the Company, acting its Board of Directors, has determined that its interests
will be advanced by the issuance to Optionee of stock options under the
Plan;
NOW,
THEREFORE, for and in consideration of the promises contained herein and
the
benefits to be derived herefrom, the parties agree as follows:
1.
Option
.
Subject
to the terms and conditions contained herein, the Company hereby irrevocably
grants to Optionee non-qualified stock options as defined in the Plan (“NQSOs”)
to purchase from the Company ______________ shares of the Company's common
stock, $0.001 par value ("Common Stock"), at a price of $_____________ per
share
(the "Option Price"), as set forth in more detail in
Exhibit
A
attached
hereto.
2.
Option
Period
.
The
NQSOs herein granted may be exercised by Optionee in whole or in part at
any
time after the Effective Date, unless sooner terminated pursuant to the terms
of
this Option Agreement. The NQSOs shall not be exercisable after the fifth
anniversary of this Option Agreement.
3.
Procedure
for Exercise
.
The
NQSOs may be exercised by written notice by Optionee to the Secretary of
the
Company setting forth the number of shares of Common Stock with respect to
which
the NQSO is to be exercised accompanied by payment of the Option Price for
the
shares to be purchased, and specifying the address to which the certificate
for
such shares is to be mailed. Payment shall be by means of cash or personal
check
payable to the order of the Company, together with any applicable withholding
taxes pursuant to Section 12. As promptly as practicable after receipt of
such
written notification and payment, the Company shall deliver to Optionee
certificates for the number of shares of Common Stock with respect to which
such
NQSO has been so exercised.
4.
Termination
of [Employment/Directorship/Consulting Arrangement
.]
Subject to paragraph 5 below, any NQSOs that are exercisable on the date
of
termination of Optionee's [employment/directorship/consulting arrangement]
with
the Company which have not been exercised within ninety (90) days of such
termination shall expire and be of no force or effect.
5.
Retirement,
Disability or Death
.
If
Optionee's [employment/consulting arrangement/directorship] with the Company
is
terminated by his retirement, disability or death, all NQSOs hereunder
exercisable at the date of such retirement, disability or death shall be
thereafter exercisable by Optionee, his executor or administrator, or the
person
or persons to whom his rights under this Option Agreement shall pass by will
or
by the laws of descent and distribution, as the case may be, for a period
of
three (3) years from the date of Optionee's retirement, disability or death
unless this Option Agreement should earlier terminate in accordance with
its
other terms. Optionee shall be deemed to be disabled if, in the option of
a
physician selected by the Board, he is incapable of performing services for
the
Company by reason of any medically determinable physical or mental impairment
which can be expected to result in death or to be of long, continued and
indefinite duration. Retirement means Optionee has: (1) reached age 65 and
completed five (5) years of service with the Company; (2) with the consent
of
the Board, completed five (5) years of service with the Company prior to
age 65
but after reaching age 60; or (3) in such other circumstances as may be
determined by the Board in its sole discretion and judgment. Such determination
of the Board shall be final and binding on the Company, the Optionee, and
his
heirs or representatives.
6.
Transferability
.
This
Option Agreement shall not be transferable by Optionee otherwise than by
Optionee's will or by the laws of descent and distribution. During the lifetime
of Optionee, the NQSOs shall be exercisable only by Optionee. Any heir or
legatee of Optionee shall take rights herein granted subject to the terms
and
conditions hereof. No such transfer of this Option Agreement to heirs or
legatees of Optionee shall be effective to bind the Company unless the Company
shall have been furnished with written notice thereof and a copy of such
evidence as the Board may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms
and
conditions hereof.
7.
No
Rights as Stockholder
.
Optionee shall have no rights as a stockholder with respect to any shares
of
Common Stock covered by this Option Agreement until the date of issuance
of a
certificate for shares of Common Stock purchased pursuant to this Option
Agreement. Until such time, Optionee shall not be entitled to dividends or
to
vote at meetings of the stockholders of the Company. Except as provided in
Section 9 hereof, no adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash or securities or other property) paid or
distributions or other rights granted in respect of any share of Common Stock
for which the record date for such payment, distribution or grant is prior
to
the date upon which the Optionee shall have been issued share certificates,
as
provided hereinabove.
8.
Extraordinary
Corporate Transactions
.
If the
Company recapitalizes or otherwise changes its capital structure, or merges,
consolidates, sells all of its assets or dissolves (each of the foregoing
a
"Fundamental Change"), then thereafter upon any exercise of NQSOs theretofore
granted, the Optionee shall be entitled to purchase, in lieu of the number
of
shares of Common Stock as to which NQSOs shall then be exercisable, the number
and class of shares of stock and securities to which the Optionee would have
been entitled pursuant to the terms of the Fundamental Change if, immediately
prior to such Fundamental Change, the Optionee had been the holder of record
of
the number of shares of Common Stock as to which such NQSOs is then
exercisable.
9.
Changes
in Capital Structure
.
The
existence of outstanding NQSOs shall not affect in any way the right or power
of
the Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company,
or any
issuance of Common Stock or subscription rights thereto, or any issuance
of
bonds, debentures, preferred or prior preference stock ahead of or affecting
the
Common Stock or the rights thereof, or the dissolution or liquidation of
the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceedings, whether of a similar character
or
otherwise. If the outstanding shares of Common Stock of the Company shall
at any
time be changed or exchanged by declaration of a stock dividend, stock split,
combination of shares, or recapitalization, then the number and kind of shares
subject to the Plan or subject to any NQSOs theretofore granted and the Option
Price shall be appropriately and equitably adjusted so as to maintain the
proportionate number of shares without changing the aggregate Option
Price.
10.
Compliance
With Securities Laws
.
Upon
the acquisition of any shares pursuant to the exercise of the NQSOs herein
granted, Optionee (or any person acting under Section 6) will enter into
such
written representations, warranties and agreements as the Company may reasonably
request in order to comply with applicable securities laws or with this Option
Agreement.
11.
Compliance
With Laws
.
Notwithstanding any of the other provisions hereof, Optionee agrees that
he or
she will not exercise the NQSOs granted hereby, and that the Company will
not be
obligated to issue any shares pursuant to this Option Agreement, if the exercise
of the NQSOs or the issuance of such shares of Common Stock would constitute
a
violation by the Optionee or by the Company of any provision of any law or
regulation of any governmental authority.
12.
Withholding
of Tax
.
To the
extent that the exercise of the NQSOs or the disposition of shares of Common
Stock acquired by exercise of NQSOs results in compensation income to the
Optionee for federal or state income tax purposes, the Optionee shall pay
to the
Company at the time of such exercise or disposition (or such other time as
the
law permits if the Optionee is subject to Section 16(b) of the Exchange Act)
such amount of money as the Company may require to meet its obligation under
applicable tax laws or regulations; and, if the Optionee fails to do so,
the
Company is authorized to withhold from any cash remuneration then or thereafter
payable to the Optionee, any tax required to be withheld by reason of such
resulting compensation income or Company may otherwise refuse to issue or
transfer any shares otherwise required to be issued or transferred pursuant
to
the terms hereof.
13.
Resolution
of Disputes
.
As a
condition of the granting of the NQSOs hereby, the Optionee and his heirs
and
successors agree that any dispute or disagreement which may arise hereunder
shall be determined by the Board in its sole discretion and judgment, and
that
any such determination and any interpretation by the Board of the terms of
this
Option Agreement shall be final and shall be binding and conclusive, for
all
purposes, upon the Company, Optionee, his heirs and personal
representatives.
14.
Legends
on Certificate
.
The
certificates representing the shares of Common Stock purchased by exercise
of
NQSOs will be stamped or otherwise imprinted with legends in such form as
the
Company or its counsel may require with respect to any applicable restrictions
on sale or transfer and the stock transfer records of the Company will reflect
stop-transfer instructions with respect to such shares.
15.
Forfeiture
.
If
[Optionee's employment or consulting arrangement is terminated For Cause
OR
Optionee is removed as a director For Cause] (as defined below), Optionee
agrees
that (i) all unexercised NQSOs shall terminate, (ii) the Company shall have
the
right to repurchase any or all shares of Common Stock received upon the exercise
of NQSOs and which were then held by Optionee for an amount equal to the
Option
Price times the number of shares of Common Stock so repurchased and (iii)
the
Optionee shall pay to the Company the amount by which the proceeds from any
sale
of the Common Stock received upon exercise of NQSOs exceeded the Option Price
of
such Common Stock sold. "For Cause" shall mean (i) gross disregard of the
Company's best interest, (ii) misappropriation or embezzlement of corporate
funds or other property (iii) conviction of a felony involving moral turpitude
or which in the opinion of the Board brings Optionee into disrepute or causes
harm to the Company's business, customer relations, financial condition or
prospects, or (iv) violation of any statutory or common law duty of loyalty
to
the Company.
16.
Notices
.
Every
notice hereunder shall be in writing and shall be given by registered or
certified mail. All notices of the exercise of any NQSOs hereunder shall
be
directed to AeroGrow International, Inc., 900 28th Street, Suite 201, Boulder,
Colorado 80303, Attention: Secretary. Any notice given by the Company to
Optionee directed to him at his address on file with the Company shall be
effective to bind him and any other person who shall acquire rights hereunder.
The Company shall be under no obligation whatsoever to advise Optionee of
the
existence, maturity or termination of any of Optionee's rights hereunder
and
Optionee shall be deemed to have familiarized him or herself with all matters
contained herein and in the Plan which may affect any of Optionee's rights
or
privileges hereunder.
17.
Construction
and Interpretation
.
Whenever the term "Optionee" is used herein under circumstances applicable
to
any other person or persons to whom this award, in accordance with the
provisions of Section 6 hereof, may be transferred, the word "Optionee" shall
be
deemed to include such person or persons. References to the masculine gender
herein also include the feminine gender for all purposes.
18.
Option
Agreement Subject to Plan
.
This
Option Agreement is subject to the Plan. The terms and provisions of the
Plan
(including any subsequent amendments thereto) are hereby incorporated herein
by
reference thereto. In the event of a conflict between any term or provision
contained herein and a term or provision of the Plan, the applicable terms
and
provisions of the Plan will govern and prevail. All definitions of words
and
terms contained in the Plan shall be applicable to this Option
Agreement.
19.
Optionee's
Relationship
.
Any
questions as to whether and when there has been a termination of Optionee's
employment, directorship or consulting arrangement, and the cause of such
termination, shall be determined by the Board and its determination shall
be
final. Nothing contained herein shall be construed as conferring upon the
Optionee the right to continue in the employ of the Company, nor shall anything
contained herein be construed or interpreted to limit the "employment at
will"
relationship between the Optionee and the Company.
20.
Binding
Effect
.
This
Option Agreement shall be binding upon and inure to the benefit of any
successors to the Company and all persons lawfully claiming under
Optionee.
21.
Governing
Law
.
This
Option Agreement shall be construed in accordance with the laws of the State
of
Colorado and the Internal Revenue Code of 1986, as amended.
IN
WITNESS WHEREOF, the parties have executed this Option Agreement on the day
and
year first indicated above.
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AEROGROW
INTERNATIONAL, INC.
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By:
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Name:
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Title:
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OPTIONEE
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Signature:
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Name:
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Exhibit
A
EXHIBIT
10.4
AEROGROW
INTERNATIONAL, INC.
2005
EQUITY COMPENSATION PLAN
SECTION
1.
PURPOSE
This
plan
shall be known as the "AeroGrow International, Inc. 2005 Equity Compensation
Plan" (the "Plan"). The purpose of the Plan is to promote the interests of
AeroGrow International, Inc. (the "Company") and the Company's stockholders
by
(i) attracting and retaining key officers, employees and directors of, and
consultants to, the Company; (ii) motivating such individuals by means of
performance-related incentives to achieve long-range performance goals; (iii)
enabling such individuals to participate in the long-term growth and financial
success of the Company; (iv) encouraging ownership of stock in the Company
by
such individuals; and (v) linking their compensation to the long-term interests
of the Company and its stockholders. With respect to any awards granted under
the Plan that are intended to comply with the requirements of "performance-based
compensation" under Section 162(m) of the Code, the Plan shall be interpreted
in
a manner consistent with such requirements.
SECTION
2.
DEFINITIONS
As
used
in the Plan, the following terms shall have the meanings set forth
below:
(a)
"AWARD"
shall mean any Option or Restricted Share Award granted under the Plan to
a
Participant by the Committee (or the Board) pursuant to such terms, conditions,
restrictions and/or limitations, if any, as the Committee (or the Board)
may
establish.
(b)
"AWARD
AGREEMENT" shall mean any written agreement, contract or other instrument
or
document evidencing any Award, which may, but need not, be executed or
acknowledged by a Participant.
(c)
"BOARD"
shall mean the board of directors of the Company.
(d)
"CHANGE
IN CONTROL" shall mean, unless otherwise defined in the applicable Award
Agreement, any of the following events:
(i)
An
acquisition (other than directly from the Company) of any voting securities
of
the Company (the "Voting Securities") by any "Person" (as the term Person
is
used for purposes of Section 13(d) or 14(d) of the Exchange Act) immediately
after which such Person has "Beneficial Ownership" (within the meaning of
Rule
13d-3 promulgated under the Exchange Act) of forty percent (40%) or more
of the
combined voting power of the then outstanding Voting Securities; provided,
however, that in determining whether a Change in Control has occurred, Voting
Securities which are acquired in a "Non-Control Acquisition" (as hereinafter
defined) shall not constitute an acquisition which would cause a Change in
Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an
employee benefit plan (or a trust forming a part thereof) maintained by the
Company;
(ii)
The
individuals who, as of the date hereof, are members of the Board (the "Incumbent
Board"), cease for any reason to constitute at least a majority of the Board;
provided, however, that if the election or nomination for election by the
Company's stockholders of any new director was approved by a vote of a majority
of the Incumbent Board, such new director shall, for purposes of this Agreement,
be considered as a member of the Incumbent Board; provided, further, however,
that no individual shall be considered a member of the Incumbent Board if
(1)
such individual initially assumed office as a result of either an actual
or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under
the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any Election Contest
or
Proxy Contest or (2) such individual was designated by a Person who has entered
into an agreement with the Company to effect a transaction described in clause
(i) or (iii) of this paragraph; or
(iii)
Approval
by stockholders of the Company of:
(A)
A
merger,
consolidation or reorganization involving the Company, unless,
(1)
The
stockholders of the Company immediately before such merger, consolidation
or
reorganization, own, directly or indirectly, immediately following such merger,
consolidation or reorganization, at least seventy-five percent (75%) of the
combined voting power of the outstanding Voting Securities of the corporation
(the "Surviving Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger, consolidation
or reorganization;
(2)
The
individuals who were members of the Incumbent Board immediately prior to
the
execution of the agreement providing for such merger, consolidation or
reorganization constitute at least two-thirds of the members of the board
of
directors of the Surviving Corporation; and
(3)
No
Person
(other than the Company, any employee benefit plan (or any trust forming
a part
thereof) maintained by the Company or the Surviving Corporation, or any Person
who, immediately prior to such merger, consolidation or reorganization, had
Beneficial Ownership of forty percent (40%) or more of the then outstanding
Voting Securities) has Beneficial Ownership of forty percent (40%) or more
of
the combined voting power of the Surviving Corporation's then outstanding
Voting
Securities.
(B)
A
complete liquidation or dissolution of the Company; or
(C)
An
agreement
for the sale or other disposition of all or substantially all of the assets
of
the Company to any Person.
Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur solely because
any Person (the "Subject Person") acquired Beneficial Ownership of more than
the
permitted amount of the outstanding Voting Securities as a result of the
acquisition of Voting Securities by the Company which, by reducing the number
of
Voting Securities outstanding, increased the proportional number of shares
Beneficially Owned by the Subject Person, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such share
acquisition by the Company, the Subject Person becomes the Beneficial Owner
of
any additional Voting Securities Beneficially Owned by the Subject Person,
then
a Change in Control shall occur.
(e)
"CODE"
shall mean the Internal Revenue Code of 1986, as amended from time to
time.
(f)
"COMMITTEE"
shall mean a committee of the Board which shall eventually be composed entirely
of Non-Employee Directors, each of whom shall be a "Non-Employee Director"
for
purposes of Exchange Act Section 16 and Rule 16b-3 thereunder and an "outside
director" for purposes of Section 162(m) and the regulations promulgated
under
the Code.
(g)
"CONSULTANT"
shall mean any consultant to the Company.
(h)
"DIRECTOR"
shall mean a member of the Board.
(i)
"EMPLOYEE"
shall mean a current or prospective officer or employee of the
Company.
(j)
"EXCHANGE
ACT" shall mean the Securities Exchange Act of 1934, as amended from time
to
time.
(k)
"FAIR
MARKET
VALUE" with respect to the Shares, shall mean, for purposes of a grant of
an
Award as of any date, (i) the closing sales price of the Shares on the Nasdaq
SmallCap Market, or any other exchange or quotation system on which the Shares
are traded, on such date, or in the absence of reported sales on such date,
the
closing sales price on the immediately preceding date on which sales were
reported or (ii) in the event there is no public market for the Shares on
such
date, the fair market value as determined, in good faith, by the Committee
in
its sole discretion, and for purposes of a sale of a Share as of any date,
the
actual sales price on that date.
(l)
"INCENTIVE
STOCK OPTION" shall mean an option to purchase Shares from the Company that
is
granted under Section 6 of the Plan and that is intended to meet the
requirements of Section 422 of the Code or any successor provision
thereto.
(m)
"NON-QUALIFIED
STOCK
OPTION" shall mean an option to purchase Shares from the Company that is
granted
under Section 6 or 8 of the Plan and is not intended to be an Incentive Stock
Option.
(n)
"NON-EMPLOYEE
DIRECTOR" shall mean a member of the Board who is not an officer or employee
of
the Company.
(o)
"OPTION"
shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
(p)
"OPTION
PRICE" shall mean the purchase price payable to purchase one Share upon the
exercise of an Option.
(q)
"PARTICIPANT"
shall mean any Employee, Director, Consultant or other person who receives
an
Award under the Plan.
(r)
"PERSON"
shall mean any individual, corporation, partnership, limited liability company,
associate, joint-stock company, trust, unincorporated organization, government
or political subdivision thereof or other entity.
(s)
"RESTRICTED
SHARE" shall mean any Share granted under Section 7 or 8 of the
Plan.
(t)
"SEC"
shall mean the Securities and Exchange Commission or any successor
thereto.
(u)
"SECTION
16" shall mean Section 16 of the Exchange Act and the rules promulgated
thereunder and any successor provision thereto as in effect from time to
time.
(v)
"SECTION
162(M)" shall mean Section 162(m) of the Code and the regulations promulgated
thereunder and any successor or provision thereto as in effect from time
to
time.
(w)
"SHARES"
shall mean shares of the common stock, $0.001 par value, of the
Company.
SECTION
3.
ADMINISTRATION
3.1
Authority
of Committee
.
The
Plan shall be administered by the Committee, which shall be appointed by
and
serve at the pleasure of the Board; provided, however, with respect to Awards
to
Directors who are members of the Committee, all references in the Plan to
the
Committee shall be deemed to be references to the Board. Subject to the terms
of
the Plan and applicable law, and in addition to other express powers and
authorizations conferred on the Committee by the Plan, the Committee shall
have
full power and authority in its discretion to: (i) designate Participants;
(ii)
determine the type or types of Awards to be granted to a Participant; (iii)
determine the number of Shares to be covered by, or with respect to which
payments, rights, or other matters are to be calculated in connection with
Awards; (iv) determine the timing, terms, and conditions of any Award; (v)
accelerate the time at which all or any part of an Award may be settled or
exercised; (vi) determine whether, to what extent, and under what circumstances
Awards may be settled or exercised in cash, Shares, other securities, other
Awards or other property, or canceled, forfeited, or suspended and the method
or
methods by which Awards may be settled, exercised, canceled, forfeited, or
suspended; (vii) determine whether, to what extent, and under what circumstances
cash, Shares, other securities, other Awards, other property, and other amounts
payable with respect to an Award shall be deferred either automatically or
at
the election of the holder thereof or of the Committee; (viii) interpret
and
administer the Plan and any instrument or agreement relating to, or Award
made
under, the Plan; (ix) except to the extent prohibited by Section 6.2, amend
or
modify the terms of any Award at or after grant with the consent of the holder
of the Award; (x) establish, amend, suspend, or waive such rules and regulations
and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (xi) make any other determination and take
any
other action that the Committee deems necessary or desirable for the
administration of the Plan, subject to the exclusive authority of the Board
under Section 11 hereunder to amend or terminate the Plan.
3.2
Committee
Discretion Binding
.
Unless
otherwise expressly provided in the Plan, all designations, determinations,
interpretations, and other decisions under or with respect to the Plan or
any
Award shall be within the sole discretion of the Committee, may be made at
any
time and shall be final, conclusive, and binding upon all Persons, including
the
Company, any Participant and any holder or beneficiary of any
Award.
3.3
Action
by the Committee
.
The
Committee shall select one of its members as its Chairperson and shall hold
its
meetings at such times and places and in such manner as it may determine.
A
majority of its members shall constitute a quorum. All determinations of
the
Committee shall be made by not less than a majority of its members. Any decision
or determination reduced to writing and signed by all of the members of the
Committee shall be fully effective as if it had been made by a majority vote
at
a meeting duly called and held. The exercise of an Option or receipt of an
Award
shall be effective only if an Award Agreement shall have been duly executed
and
delivered on behalf of the Company following the grant of the Option or other
Award. The Committee may appoint a secretary and may make such rules and
regulations for the conduct of its business, as it shall deem
advisable.
3.4
Delegation
.
Subject
to the terms of the Plan and applicable law, the Committee may delegate to
one
or more officers or managers of the Company, or to a Committee of such officers
or managers, the authority, subject to such terms and limitations as the
Committee shall determine, to grant Awards to, or to cancel, modify or waive
rights with respect to, or to alter, discontinue, suspend, or terminate Awards
held by Participants who are not officers or directors of the Company for
purposes of Section 16 or who are otherwise not subject to such
section.
3.5
No
Liability
.
No
member of the Board or Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Award granted
hereunder.
SECTION
4.
SHARES
AVAILABLE FOR AWARDS
4.1
Shares
Available
.
Subject
to the provisions of Section 4.2 hereof, the stock to be subject to Awards
under
the Plan shall be the Shares of the Company and the maximum number of Shares
with respect to which Awards may be granted under the Plan shall be 1,505,000,
which includes 195,131 Shares with respect to which awards under the AeroGrow
International, Inc. 2003 Stock Option Plan ("2003 Plan") were authorized
but not
granted. Notwithstanding the foregoing and subject to adjustment as provided
in
Section 4.2, the maximum number of Shares with respect to which Awards may
be
granted under the Plan shall be increased by the number of Shares with respect
to which Options or other Awards were granted under the 2003 Plan, as of
the
effective date of this Plan, but which terminate, expire unexercised, or
are
settled for cash, forfeited or canceled without the delivery of Shares under
the
terms of the 2003 Plan after the effective date of this Plan. The number
of
Shares to which Awards may be granted under the Plan may not be increased
unless
such increase is approved by at least a majority of the outstanding
Shares.
If,
after
the effective date of the Plan, any Shares covered by an Award granted under
this Plan, or to which such an Award relates, are forfeited, or if such an
Award
is settled for cash or otherwise terminates, expires unexercised, or is canceled
without the delivery of Shares, then the Shares covered by such Award, or
to
which such Award relates, or the number of Shares otherwise counted against
the
aggregate number of Shares with respect to which Awards may be granted, to
the
extent of any such settlement, forfeiture, termination, expiration, or
cancellation, shall again become Shares with respect to which Awards may
be
granted. In the event that any Option or other Award granted hereunder is
exercised through the delivery of Shares or in the event that withholding
tax
liabilities arising from such Award are satisfied by the withholding of Shares
by the Company, the number of Shares available for Awards under the Plan
shall
be increased by the number of Shares so surrendered or withheld.
4.2
Adjustments
.
In the
event that the Committee determines that any dividend or other distribution
(whether in the form of cash, Shares, other securities, or other property)
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Shares or other securities of the Company, issuance of warrants or other
rights
to purchase Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an adjustment
is
determined by the Committee, in its sole discretion, to be appropriate, then
the
Committee shall, in such manner as it may deem equitable (and, with respect
to
Incentive Stock Options, in such manner as is consistent with Section 422
of the
Code and the regulations thereunder): (i) adjust any or all of (1) the aggregate
number of Shares or other securities of the Company (or number and kind of
other
securities or property) with respect to which Awards may be granted under
the
Plan; (2) the number of Shares or other securities of the Company (or number
and
kind of other securities or property) subject to outstanding Awards under
the
Plan; and (3) the grant or exercise price with respect to any Award under
the
Plan, provided that the number of Shares subject to any Award shall always
be a
whole number; (ii) if deemed appropriate, provide for an equivalent award
in
respect of securities of the surviving entity of any merger, consolidation
or
other transaction or event having a similar effect; or (iii) if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Award.
4.3
Sources
of Shares Deliverable Under Awards
.
Any
Shares delivered pursuant to an Award may consist, in whole or in part, of
authorized and unissued Shares or of issued Shares that have been reacquired
by
the Company.
SECTION
5.
ELIGIBILITY
Any
Employee, Director or Consultant shall be eligible to be designated a
Participant; provided, however, that Non-Employee Directors shall only be
eligible to receive Awards granted consistent with Section 8.1.
SECTION
6.
STOCK
OPTIONS
6.1
Grant
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Participants to whom Options shall be granted,
the
number of Shares subject to each Award, the exercise price and the conditions
and limitations applicable to the exercise of each Option. The Committee
shall
have the authority to grant Incentive Stock Options or Non-Qualified Stock
Options or to grant both types of Options. In the case of Incentive Stock
Options, the terms and conditions of such grants shall be subject to and
comply
with such rules as may be prescribed by Section 422 of the Code, as from
time to
time amended, and any regulations implementing such statute. A person who
has
been granted an Option under this Plan may be granted additional Options
under
the Plan if the Committee shall so determine; provided, however, that to
the
extent the aggregate Fair Market Value (determined at the time the Incentive
Stock Option related thereto is granted) of the Shares with respect to which
all
Incentive Stock Options related to such Option are exercisable for the first
time by an Employee during any calendar year (under all plans described in
subsection (d) of Section 422 of the Code of the Company) exceeds $100,000
(or
such higher amount as is permitted in the future under Section 422(d) of
the
Code), such Options shall be treated as Non-Qualified Stock
Options.
6.2
Price
.
The
Committee in its sole discretion shall establish the Option Price at the
time
each Option is granted. The Option Price of an Option may not be less than
100%
of the Fair Market Value of the Shares with respect to which the Option is
granted on the date of grant of such Option. Notwithstanding the foregoing
and
except as permitted by the provisions of Section 4.2 and Section 11 hereof,
the
Committee shall not have the power to (i) amend the terms of previously granted
Options to reduce the Option Price of such Options, or (ii) cancel such Options
and grant substitute Options with a lower Option Price than the canceled
Options.
6.3
Term
.
Subject
to the Committee's authority under Section 3.1 and the provisions of Section
6.5, each Option and all rights and obligations thereunder shall expire on
the
date determined by the Committee and specified in the Award Agreement. The
Committee shall be under no duty to provide terms of like duration for Options
granted under the Plan. Notwithstanding the foregoing, no Option that relates
to
such Option shall be exercisable after the expiration of five (5) years from
the
date such Option was granted.
6.4
Exercise
.
(a)
Each
Option shall be exercisable at such times and subject to such terms and
conditions as the Committee may, in its sole discretion, specify in the
applicable Award Agreement or thereafter. The Committee shall have full and
complete authority to determine, subject to Section 6.5 herein, whether an
Option will be exercisable in full at any time or from time to time during
the
term of the Option, or to provide for the exercise thereof in such installments,
upon the occurrence of such events and at such times during the term of the
Option as the Committee may determine.
(b)
The
Committee may impose such conditions with respect to the exercise of Options,
including without limitation, any relating to the application of federal,
state
or foreign securities laws or the Code, as it may deem necessary or advisable.
The exercise of any Option granted hereunder shall be effective only at such
time as the sale of Shares pursuant to such exercise will not violate any
state
or federal securities or other laws.
(c)
An
Option
may be exercised in whole or in part at any time, with respect to whole Shares
only, within the period permitted thereunder for the exercise thereof, and
shall
be exercised by written notice of intent to exercise the Option, delivered
to
the Company at its principal office, and payment in full to the Company at
the
direction of the Committee of the amount of the Option Price for the number
of
Shares with respect to which the Option is then being exercised.
(d)
Payment
of
the Option Price shall be made in cash or cash equivalents, or, at the
discretion of the Committee, (i) in whole Shares valued at the Fair Market
Value
of such Shares on the date of exercise, together with any applicable withholding
taxes, or (ii) by a combination of such cash (or cash equivalents) and such
Shares; provided, however, that the optionee shall not be entitled to tender
Shares pursuant to successive, substantially simultaneous exercises of an
Option
or any other stock option of the Company. Subject to applicable securities
laws,
an Option may also be exercised by (i) delivering a notice of exercise of
the
Option and simultaneously selling the Shares thereby acquired, pursuant to
a
brokerage or similar agreement approved in advance by proper officers of
the
Company, using the proceeds of such sale as payment of the Option Price,
together with any applicable withholding taxes, or (ii) any other exercise
method (including attestation of shares) approved by the Committee. Until
the
optionee has been issued the Shares subject to such exercise, he or she shall
possess no rights as a stockholder with respect to such Shares.
6.5
Ten
Percent Stock Rule
.
Notwithstanding any other provisions in the Plan, if at the time an Option
is
otherwise to be granted pursuant to the Plan the optionee or rights holder
owns
directly or indirectly (within the meaning of Section 424(d) of the Code)
Shares
of the Company possessing more than ten percent (10%) of the total combined
voting power of all classes of Stock of the Company, then any Incentive Stock
Option to be granted to such optionee or rights holder pursuant to the Plan
shall satisfy the requirement of Section 422(c)(5) of the Code, and the Option
Price shall be not less than 110% of the Fair Market Value of the Shares
of the
Company, and such Option by its terms shall not be exercisable after the
expiration of five (5) years from the date such Option is granted.
SECTION
7.
RESTRICTED
SHARES
7.1
Grant
.
(a)
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Participants to whom Restricted Shares shall be
granted, the number of Restricted Shares to be granted to each Participant,
the
duration of the period during which, and the conditions under which, the
Restricted Shares may be forfeited to the Company, and the other terms and
conditions of such Awards. The Restricted Shares shall be evidenced by Award
Agreements in such form as the Committee shall from time to time approve,
which
agreements shall comply with and be subject to the terms and conditions provided
hereunder and any additional terms and conditions established by the Committee
that are consistent with the terms of the Plan.
(b)
Each
Restricted Share made under the Plan shall be for such number of Shares as
shall
be determined by the Committee and set forth in the Award Agreement containing
the terms of such Restricted Share Award. The Award Agreement for employees
may
set forth a period of time during which the grantee must remain in the
continuous employment of the Company in order for the forfeiture and transfer
restrictions to lapse. If the Committee so determines, the restrictions may
lapse during such restricted period in installments with respect to specified
portions of the Shares covered by the Restricted Share Award. The Award
Agreement may also, in the discretion of the Committee, set forth performance
or
other conditions that will subject the Shares to forfeiture and transfer
restrictions. The Committee may, at its discretion, waive all or any part
of the
restrictions applicable to any or all outstanding Restricted Share
Awards.
7.2
Delivery
of Shares and Transfer Restrictions
.
At the
time of a Restricted Share Award, a certificate representing the number of
Shares awarded thereunder shall be registered in the name of the grantee.
Such
certificate shall be held by the Company or any custodian appointed by the
Company for the account of the grantee subject to the terms and conditions
of
the Plan, and shall bear such a legend setting forth the restrictions imposed
thereon as the Committee, in its discretion, may determine. The grantee shall
have all rights of a stockholder with respect to the Restricted Shares,
including the right to receive dividends and the right to vote such Shares,
subject to the following restrictions: (i) the grantee shall not be entitled
to
delivery of the stock certificate until the expiration of the restricted
period
and the fulfillment of any other restrictive conditions set forth in the
Award
Agreement with respect to such Shares; (ii) none of the Shares may be sold,
assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed
of during such restricted period or until after the fulfillment of any such
other restrictive conditions; and (iii) except as otherwise determined by
the
Committee at or after grant, all of the Shares shall be forfeited and all
rights
of the grantee to such Shares shall terminate, without further obligation
on the
part of the Company, unless any restrictive conditions set forth in the Award
Agreement relating to the Restricted Share Award are met. Any Shares, any
other
securities of the Company and any other property (except for cash dividends)
distributed with respect to the Shares subject to Restricted Share Awards
shall
be subject to the same restrictions, terms and conditions as such restricted
Shares.
7.3
Termination
of Restrictions
.
At the
end of the restricted period and provided that any other restrictive conditions
of the Restricted Share Award are met, or at such earlier time as otherwise
determined by the Committee, all restrictions set forth in the Award Agreement
relating to the Restricted Share Award or in the Plan shall lapse as to the
restricted Shares subject thereto, and a stock certificate for the appropriate
number of Shares, free of the restrictions and restricted stock legend, other
than any legends required by applicable securities laws, shall be delivered
to
the Participant or the Participant's beneficiary or estate, as the case may
be.
SECTION
8.
DIRECTOR
AWARDS
8.1
Awards
to Non-Employee Directors
.
The
Board may provide that all or a portion of a Non-Employee Director's annual
retainer, meeting fees and/or other awards or compensation as determined
by the
Board, be payable (either automatically or at the election of a Non-Employee
Director) in the form of Non-Qualified Stock Options or Restricted Shares.
The
Board shall determine the terms and conditions of any such Awards, including
the
terms and conditions which shall apply upon a termination of the Non-Employee
Director's service as a member of the Board, and shall have full power and
authority in its discretion to administer such Awards, subject to the terms
of
the Plan and applicable law.
8.2
Awards
of Restricted Shares to Directors
.
Grants
of Restricted Shares to Directors in lieu of cash stipends, in whole or in
part,
shall have no minimum vesting period or restrictive period as may be determined
in the sole discretion of the Committee.
SECTION
9.
TERMINATION
The
Committee shall have the full power and authority to determine the terms
and
conditions that shall apply to any Award upon a termination of employment,
consulting arrangement or directorship with the Company, including a termination
by the Company with or without cause, by a Participant voluntarily, or by
reason
of death, disability or retirement, and may provide such terms and conditions
in
the Award Agreement or in such rules and regulations as it may
prescribe.
SECTION
10.
CHANGE
IN CONTROL
Upon
a
Change in Control, all outstanding Awards shall vest, become immediately
exercisable or payable and have all restrictions lifted.
SECTION
11.
AMENDMENT
AND TERMINATION
11.1
Amendments
to the Plan
.
The
Board may amend, alter, suspend, discontinue, or terminate the Plan or any
portion thereof at any time; provided that no such amendment, alteration,
suspension, discontinuation or termination shall be made without stockholder
approval if such approval is necessary to comply with any tax or regulatory
requirement for which or with which the Board deems it necessary or desirable
to
comply; provided that any such waiver, amendment, alteration, suspension,
discontinuance or termination that would adversely affect the rights of any
Participants, or any holder or beneficiary, under any Award theretofore granted,
shall not to that extent be effective without the consent of the affected
Participant, holder, or beneficiary.
11.2
Amendments
to Awards
.
Subject
to the restrictions of Section 6.2, the Committee may waive any conditions
or
rights under, amend any terms of, or alter, suspend, discontinue, cancel
or
terminate, any Award theretofore granted, prospectively or retroactively;
provided that any such waiver, amendment, alteration, suspension,
discontinuance, cancellation or termination that would adversely affect the
rights of any Participants, or any holder or beneficiary of any Award
theretofore granted, shall not to that extent be effective without the consent
of the affected Participant, holder, or beneficiary.
11.3
Adjustments
of Awards Upon the Occurrence of Certain Unusual or Nonrecurring
Events
.
The
Committee is hereby authorized to make adjustments in the terms and conditions
of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described
in
Section 4.2 hereof) affecting the Company or the financial statements of
the
Company, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
SECTION
12.
GENERAL
PROVISIONS
12.1
Limited
Transferability of Awards
.
Except
as otherwise provided in the Plan, no Award shall be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by a Participant,
except by will or the laws of descent and distribution and/or as may be provided
by the Committee in its discretion, at or after grant, in the Award Agreement.
No transfer of an Award by will or by laws of descent and distribution shall
be
effective to bind the Company unless the Company shall have been furnished
with
written notice thereof and an authenticated copy of the will and/or such
other
evidence as the Committee may deem necessary or appropriate to establish
the
validity of the transfer.
12.2
Dividend
Equivalents
.
In the
sole and complete discretion of the Committee, an Award may provide the
Participant with dividends or dividend equivalents, payable in cash, Shares,
other securities or other property on a current or deferred basis. All dividend
or dividend equivalents which are not paid currently may, at the Committee's
discretion, accrue interest, be reinvested into additional Shares and paid
to
the Participant if and when, and to the extent that, payment is made pursuant
to
such Award. The total number of Shares available for grant under Section
4 shall
not be reduced to reflect any dividends or dividend equivalents that are
reinvested into additional Shares.
12.3
No
Rights to Awards
.
No
Person shall have any claim to be granted any Award, and there is no obligation
for uniformity of treatment of Participants or holders or beneficiaries of
Awards. The terms and conditions of Awards need not be the same with respect
to
each Participant.
12.4
Share
Certificates
.
All
certificates for Shares or other securities of the Company delivered under
the
Plan pursuant to any Award or the exercise thereof shall be subject to such
stop
transfer orders and other restrictions as the Committee may deem advisable
under
the Plan or the rules, regulations and other requirements of the SEC or any
state securities commission or regulatory authority, any stock exchange or
other
market upon which such Shares or other securities are then listed, and any
applicable Federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference
to such
restrictions.
12.5
Withholding
.
A
Participant may be required to pay to the Company and the Company shall have
the
right and is hereby authorized to withhold from any Award, from any payment
due
or transfer made under any Award or under the Plan, or from any compensation
or
other amount owing to a Participant the amount (in cash, Shares, other
securities, other Awards or other property) of any applicable withholding
or
other taxes in respect of an Award, its exercise, or any payment or transfer
under an Award or under the Plan and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes. The Committee may provide for additional cash payments
to
holders of Options to defray or offset any tax arising from the grant, vesting,
exercise or payment of any Award.
12.6
Award
Agreements
.
Each
Award hereunder shall be evidenced by an Award Agreement that shall be delivered
to the Participant and may specify the terms and conditions of the Award
and any
rules applicable thereto. In the event of a conflict between the terms of
the
Plan and any Award Agreement, the terms of the Plan shall prevail.
12.7
No
Limit on Other Compensation Arrangements
.
Nothing
contained in the Plan shall prevent the Company from adopting or continuing
in
effect other compensation arrangements, which may, but need not, provide
for the
grant of Options, Restricted Shares or other types of Awards provided for
hereunder.
12.8
No
Right to Employment
.
The
grant of an Award shall not be construed as giving a Participant the right
to be
retained in the employ of the Company. Further, the Company may at any time
dismiss a Participant from employment, free from any liability or any claim
under the Plan, unless otherwise expressly provided in an Award
Agreement.
12.9
No
Rights as Stockholder
.
Subject
to the provisions of the Plan and the applicable Award Agreement, no Participant
or holder or beneficiary of any Award shall have any rights as a stockholder
with respect to any Shares to be distributed under the Plan until such person
has become a holder of such Shares. Notwithstanding the foregoing, in connection
with each grant of Restricted Shares hereunder, the applicable Award Agreement
shall specify if and to what extent the Participant shall not be entitled
to the
rights of a stockholder in respect of such Restricted Shares.
12.10
Governing
Law
.
The
validity, construction and effect of the Plan and any rules and regulations
relating to the Plan and any Award Agreement shall be determined in accordance
with the laws of the State of Colorado without giving effect to conflicts
of
laws principles.
12.11
Severability
.
If any
provision of the Plan or any Award is, or becomes, or is deemed to be invalid,
illegal, or unenforceable in any jurisdiction or as to any Person or Award,
or
would disqualify the Plan or any Award under any law deemed applicable by
the
Committee, such provision shall be construed or deemed amended to conform
to the
applicable laws, or if it cannot be construed or deemed amended without,
in the
determination of the Committee, materially altering the intent of the Plan
or
the Award, such provision shall be stricken as to such jurisdiction, Person
or
Award and the remainder of the Plan and any such Award shall remain in full
force and effect.
12.12
Other
Laws
.
The
Committee may refuse to issue or transfer any Shares or other consideration
under an Award if, acting in its sole discretion, it determines that the
issuance or transfer of such Shares or such other consideration might violate
any applicable law or regulation (including applicable non-U.S. laws or
regulations) or entitle the Company to recover the same under Exchange Act
Section 16(b), and any payment tendered to the Company by a Participant,
other
holder or beneficiary in connection with the exercise of such Award shall
be
promptly refunded to the relevant Participant, holder, or
beneficiary.
12.13
No
Trust or Fund Created
.
Neither
the Plan nor any Award shall create or be construed to create a trust or
separate fund of any kind or a fiduciary relationship between the Company
and a
Participant or any other Person. To the extent that any Person acquires a
right
to receive payments from the Company pursuant to an Award, such right shall
be
no greater than the right of any unsecured general creditor of the
Company.
12.14
No
Fractional Shares
.
No
fractional Shares shall be issued or delivered pursuant to the Plan or any
Award, and the Committee shall determine whether cash, other securities,
or
other property shall be paid or transferred in lieu of any fractional Shares
or
whether such fractional Shares or any rights thereto shall be canceled,
terminated or otherwise eliminated.
12.15
Headings
.
Headings are given to the sections and subsections of the Plan solely as
a
convenience to facilitate reference. Such headings shall not be deemed in
any
way material or relevant to the construction or interpretation of the Plan
or
any provision thereof.
SECTION
13.
TERM
OF THE PLAN
13.1
Effective
Date
.
The
Plan shall be effective as of August ____, 2005, provided it has been approved
by the Company's stockholders on or prior to August ____, 2006.
13.2
Expiration
Date
.
No new
Awards shall be granted under the Plan after the tenth (10th) anniversary
of the
Effective Date. Unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Award granted hereunder may, and the authority
of the Board or the Committee to amend, alter, adjust, suspend, discontinue,
or
terminate any such Award or to waive any conditions or rights under any such
Award shall, continue after the tenth (10th) anniversary of the Effective
Date.
EXHIBIT
10.5
STOCK
OPTION AGREEMENT
RELATING
TO THE
AEROGROW
INTERNATIONAL, INC.
2005
EQUITY COMPENSATION PLAN
This
Stock Option Agreement dated as of this ______ day of ______________ 2005
("Option Agreement") is between AeroGrow International, Inc., a Nevada
corporation (the "Company"), and ______________________ (the
"Optionee").
RECITALS
WHEREAS,
the Company has adopted the AeroGrow International, Inc. 2005 Equity
Compensation Plan (the "Plan") for the purpose of providing employees,
consultants and directors of the Company with additional incentive to promote
the success of the business, to increase their proprietary interest in the
success of the Company, and to encourage them to remain in the employ of,
or as
a consultant or director to, the Company; and
WHEREAS,
the Company, acting through the Compensation Committee of its Board of Directors
(the "Committee"), has determined that its interests will be advanced by
the
issuance to Optionee of stock options under the Plan;
NOW,
THEREFORE, for and in consideration of the promises contained herein and
the
benefits to be derived herefrom, the parties agree as follows:
1.
Option
.
Subject
to the terms and conditions contained herein, the Company hereby irrevocably
grants to Optionee [incentive stock options as defined in Section 422 of
the
Internal Revenue Code of 1986, as amended ("Code") OR non-qualified stock
options as defined in the Plan] ("Options") to purchase from the Company
______________ shares of the Company's common stock, $0.001 par value ("Common
Stock"), at a price of $_____________ per share (the "Option Price") which
the
Committee has in good faith determined to be no less than 100% of the fair
market value of the Common Stock as of the date of this Agreement.
2.
Option
Period
.
The
Options herein granted may be exercised by Optionee in whole or in part on
or
after the dates on which the right to exercise the Option for such shares
of
Common Stock has vested ("Option Period"), in accordance with the following
schedule, unless sooner terminated pursuant to the terms of this Option
Agreement: [
for
example
]
|
|
|
Number
of
|
|
|
Date
|
|
Shares
Purchasable
|
|
|
__________,
2005
|
|
|
_____________
|
|
|
__________,
2006
|
|
|
_____________
|
|
|
__________,
2007
|
|
|
_____________
|
|
|
__________,
2008
|
|
|
_____________
|
|
|
__________,
2009
|
|
|
_____________
|
|
|
__________,
2010
|
|
|
_____________
|
|
|
|
|
|
|
|
Notwithstanding
anything in this Agreement to the contrary, the Committee in its sole discretion
may waive the foregoing schedule of vesting and, upon written notice to the
Optionee, accelerate the earliest date on which any of the Options granted
hereunder are exercisable. Notwithstanding any other provisions contained
herein, the Options shall not be exercisable after the fifth anniversary
of this
Option Agreement.
3.
Procedure
for Exercise
.
The
Options may be exercised by written notice by Optionee to the Secretary of
the
Company setting forth the number of shares of Common Stock with respect to
which
the Option is to be exercised accompanied by payment of the Option Price
for the
shares to be purchased, and specifying the address to which the certificate
for
such shares is to be mailed. Payment shall be by means of cash or personal
check
payable to the order of the Company, together with any applicable withholding
taxes pursuant to Section 13. As promptly as practicable after receipt of
such
written notification and payment, the Company shall deliver to Optionee
certificates for the number of shares of Common Stock with respect to which
such
Option has been so exercised.
4.
Termination
of [Employment/Directorship/Consulting Arrangement
.]
If
Optionee's [employment/directorship/consulting arrangement] with the Company
is
terminated during the Option Period for any reason, Options granted to him
which
are not exercisable on such date thereupon terminate. Subject to Sections
5, 10
and 16 below, any Options that are exercisable on the date of such termination
which have not been exercised within [90 days of such termination [for ISOs]
OR
180 days of such termination [for NQs to employees] OR the fifth anniversary
of
this Option Agreement [for NQs to consultants]] shall expire and be of no
force
or effect.
5.
Retirement,
Disability or Death
.
If
Optionee's [employment/consulting arrangement/directorship] with the Company
is
terminated by his retirement, disability or death, all Options hereunder
exercisable at the date of such retirement, disability or death shall be
thereafter exercisable by Optionee, his executor or administrator, or the
person
or persons to whom his rights under this Option Agreement shall pass by will
or
by the laws of descent and distribution, as the case may be, for a period
of
three (3) years from the date of Optionee's retirement, disability or death
unless this Option Agreement should earlier terminate in accordance with
its
other terms. Optionee shall be deemed to be disabled if, in the option of
a
physician selected by the Committee, he is incapable of performing services
for
the Company by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of long, continued
and indefinite duration. Retirement means Optionee has: (1) reached age 65
and
completed five (5) years of service with the Company; (2) with the consent
of
the Committee, completed five (5) years of service with the Company prior
to age
65 but after reaching age 60; or (3) in such other circumstances as may be
determined by the Committee in its sole discretion and judgment. Such
determination of the Committee shall be final and binding on the Company,
the
Optionee, and his heirs or representatives.
6.
Transferability
.
This
Option Agreement shall not be transferable by Optionee otherwise than by
Optionee's will or by the laws of descent and distribution. During the lifetime
of Optionee, the Options shall be exercisable only by Optionee. Any heir
or
legatee of Optionee shall take rights herein granted subject to the terms
and
conditions hereof. No such transfer of this Option Agreement to heirs or
legatees of Optionee shall be effective to bind the Company unless the Company
shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of
the
transfer and the acceptance by the transferee or transferees of the terms
and
conditions hereof.
7.
No
Rights as Stockholder
.
Optionee shall have no rights as a stockholder with respect to any shares
of
Common Stock covered by this Option Agreement until the date of issuance
of a
certificate for shares of Common Stock purchased pursuant to this Option
Agreement. Until such time, Optionee shall not be entitled to dividends or
to
vote at meetings of the stockholders of the Company. Except as provided in
Section 9 hereof, no adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash or securities or other property) paid or
distributions or other rights granted in respect of any share of Common Stock
for which the record date for such payment, distribution or grant is prior
to
the date upon which the Optionee shall have been issued share certificates,
as
provided hereinabove.
8.
Extraordinary
Corporate Transactions
.
If the
Company recapitalizes or otherwise changes its capital structure, or merges,
consolidates, sells all of its assets or dissolves (each of the foregoing
a
"Fundamental Change"), then thereafter upon any exercise of Options theretofore
granted, the Optionee shall be entitled to purchase, in lieu of the number
of
shares of Common Stock as to which Options shall then be exercisable, the
number
and class of shares of stock and securities to which the Optionee would have
been entitled pursuant to the terms of the Fundamental Change if, immediately
prior to such Fundamental Change, the Optionee had been the holder of record
of
the number of shares of Common Stock as to which such Options is then
exercisable.
9.
Changes
in Capital Structure
.
The
existence of outstanding Options shall not affect in any way the right or
power
of the Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company,
or any
issuance of Common Stock or subscription rights thereto, or any issuance
of
bonds, debentures, preferred or prior preference stock ahead of or affecting
the
Common Stock or the rights thereof, or the dissolution or liquidation of
the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceedings, whether of a similar character
or
otherwise. If the outstanding shares of Common Stock of the Company shall
at any
time be changed or exchanged by declaration of a stock dividend, stock split,
combination of shares, or recapitalization, then the number and kind of shares
subject to the Plan or subject to any Options theretofore granted, and the
Option Price and the prices at which portions of the Options may be exercisable
on an accelerated basis as set forth in Section 2, shall be appropriately
and
equitably adjusted so as to maintain the proportionate number of shares without
changing the aggregate Option Price.
10.
Change
of Control
.
In the
event that there is a proposed Change in Control (as defined in the Plan),
the
Options shall become immediately exercisable notwithstanding the provisions
of
Section 2. Optionee shall be given reasonable notice of such Change of Control
Event and shall have a period of at least thirty (30) days thereafter to
exercise the Options.
11.
Compliance
With Securities Laws
.
Upon
the acquisition of any shares pursuant to the exercise of the Options herein
granted, Optionee (or any person acting under Section 6) will enter into
such
written representations, warranties and agreements as the Company may reasonably
request in order to comply with applicable securities laws or with this Option
Agreement.
12.
Compliance
With Laws
.
Notwithstanding any of the other provisions hereof, Optionee agrees that
he or
she will not exercise the Options granted hereby, and that the Company will
not
be obligated to issue any shares pursuant to this Option Agreement, if the
exercise of the Options or the issuance of such shares of Common Stock would
constitute a violation by the Optionee or by the Company of any provision
of any
law or regulation of any governmental authority.
13.
Withholding
of Tax
.
To the
extent that the exercise of the Options or the disposition of shares of Common
Stock acquired by exercise of Options results in compensation income to the
Optionee for federal or state income tax purposes, the Optionee shall pay
to the
Company at the time of such exercise or disposition (or such other time as
the
law permits if the Optionee is subject to Section 16(b) of the Exchange Act)
such amount of money as the Company may require to meet its obligation under
applicable tax laws or regulations; and, if the Optionee fails to do so,
the
Company is authorized to withhold from any cash remuneration then or thereafter
payable to the Optionee, any tax required to be withheld by reason of such
resulting compensation income or Company may otherwise refuse to issue or
transfer any shares otherwise required to be issued or transferred pursuant
to
the terms hereof.
14.
Resolution
of Disputes
.
As a
condition of the granting of the Options hereby, the Optionee and his heirs
and
successors agree that any dispute or disagreement which may arise hereunder
shall be determined by the Committee in its sole discretion and judgment,
and
that any such determination and any interpretation by the Committee of the
terms
of this Option Agreement shall be final and shall be binding and conclusive,
for
all purposes, upon the Company, Optionee, his heirs and personal
representatives.
15.
Legends
on Certificate
.
The
certificates representing the shares of Common Stock purchased by exercise
of
Options will be stamped or otherwise imprinted with legends in such form
as the
Company or its counsel may require with respect to any applicable restrictions
on sale or transfer and the stock transfer records of the Company will reflect
stop-transfer instructions with respect to such shares.
16.
Forfeiture
.
If
[Optionee's employment or consulting arrangement is terminated For Cause
OR
Optionee is removed as a director For Cause] (as defined below), Optionee
agrees
that (i) all unexercised Options shall terminate, (ii) the Company shall
have
the right to repurchase any or all shares of Common Stock received upon the
exercise of Options and which were then held by Optionee for an amount equal
to
the Option Price times the number of shares of Common Stock so repurchased
and
(iii) the Optionee shall pay to the Company the amount by which the proceeds
from any sale of the Common Stock received upon exercise of Options exceeded
the
Option Price of such Common Stock sold. "For Cause" shall mean (i) gross
disregard of the Company's best interest, (ii) misappropriation or embezzlement
of corporate funds or other property (iii) conviction of a felony involving
moral turpitude or which in the opinion of the Committee brings Optionee
into
disrepute or causes harm to the Company's business, customer relations,
financial condition or prospects, or (iv) violation of any statutory or common
law duty of loyalty to the Company.
17.
Notices
.
Every
notice hereunder shall be in writing and shall be given by registered or
certified mail. All notices of the exercise of any Options hereunder shall
be
directed to AeroGrow International, Inc., 900 28th Street, Suite 201, Boulder,
Colorado 80303, Attention: Secretary. Any notice given by the Company to
Optionee directed to him at his address on file with the Company shall be
effective to bind him and any other person who shall acquire rights hereunder.
The Company shall be under no obligation whatsoever to advise Optionee of
the
existence, maturity or termination of any of Optionee's rights hereunder
and
Optionee shall be deemed to have familiarized him or herself with all matters
contained herein and in the Plan which may affect any of Optionee's rights
or
privileges hereunder.
18.
Construction
and Interpretation
.
Whenever the term "Optionee" is used herein under circumstances applicable
to
any other person or persons to whom this award, in accordance with the
provisions of Section 6 hereof, may be transferred, the word "Optionee" shall
be
deemed to include such person or persons. References to the masculine gender
herein also include the feminine gender for all purposes.
19.
Option
Agreement Subject to Plan
.
This
Option Agreement is subject to the Plan. The terms and provisions of the
Plan
(including any subsequent amendments thereto) are hereby incorporated herein
by
reference thereto. In the event of a conflict between any term or provision
contained herein and a term or provision of the Plan, the applicable terms
and
provisions of the Plan will govern and prevail. All definitions of words
and
terms contained in the Plan shall be applicable to this Option
Agreement.
20.
Optionee's
Relationship
.
Any
questions as to whether and when there has been a termination of Optionee's
employment, directorship or consulting arrangement, and the cause of such
termination, shall be determined by the Committee and its determination shall
be
final. Nothing contained herein shall be construed as conferring upon the
Optionee the right to continue in the employ of the Company, nor shall anything
contained herein be construed or interpreted to limit the "employment at
will"
relationship between the Optionee and the Company.
21.
Binding
Effect
.
This
Option Agreement shall be binding upon and inure to the benefit of any
successors to the Company and all persons lawfully claiming under
Optionee.
22.
Governing
Law
.
This
Option Agreement shall be construed in accordance with the laws of the State
of
Colorado and the Code.
IN
WITNESS WHEREOF, the parties have executed this Option Agreement on the day
and
year first indicated above.
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AEROGROW
INTERNATIONAL, INC.
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By:
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Name:
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Title:
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OPTIONEE
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Signature:
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Name:
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EXHIBIT
10.6
RESTRICTED
STOCK AWARD AGREEMENT
RELATING
TO THE
AEROGROW
INTERNATIONAL, INC.
2005
EQUITY COMPENSATION PLAN
THIS
RESTRICTED STOCK AWARD AGREEMENT, dated as of this ______ day of _____________
2005 (the "Agreement"), is between AeroGrow International, Inc., a Nevada
corporation (the "Company"), and __________________ ("Grantee").
RECITALS
WHEREAS,
the Company has awarded Grantee certain shares of the authorized but unissued
common stock, $0.001 par value, of the Company (the "Common Stock") pursuant
to
the terms of the AeroGrow International, Inc. 2005 Equity Compensation Plan
(the
"Plan"); and
WHEREAS,
the Plan contemplates a written document evidencing the award;
NOW,
THEREFORE, for and in consideration of the promises and the mutual covenants
contained in this Agreement, the parties agree as follows:
SECTION
1
AWARD
OF SHARES
1.1
Award
.
Pursuant to the terms of the Plan, Grantee is hereby awarded ________ shares
("Shares") of the Common Stock, effective ______________, 2005 ("Effective
Date").
1.2
Delivery
of Certificates
.
Any
certificates representing the Shares hereunder shall be held in escrow by
the
Secretary of the Company as provided in Section 4 hereof.
1.3
Stockholder
Right
.
Until
such time as any or all of the Shares are forfeited pursuant to the terms
of
this Agreement, if ever, Grantee (or any successor in interest) shall have
all
the rights of a stockholder (including voting rights) with respect to the
Shares, including Shares held in escrow under Section 4, subject, however,
to
the transfer restrictions of Section 2.
SECTION
2
TRANSFER
RESTRICTIONS
2.1
Restriction
on Transfer
.
Grantee
shall not transfer, assign, encumber or otherwise dispose of any Unvested
Shares
(as defined below) at any time.
2.2
Disposition
of Shares
.
Grantee
hereby agrees that Grantee shall make no disposition of the Vested Shares
(as
defined below) unless and until Grantee:
a.
shall
have notified the Company of the proposed disposition and provided a written
summary of the terms and conditions of the proposed disposition;
and
b.
shall
have complied with all requirements of this Agreement applicable to the
disposition of the Shares.
The
Company shall not be required (i) to transfer on its books any Shares which
have
been sold or transferred in violation of the provisions of this Section 2,
nor
(ii) to treat as the owner of the Shares, or otherwise to accord voting or
dividend rights to, any transferee to whom the Shares have been transferred
in
contravention of this Agreement. Grantee agrees to pay the Company's reasonable
expenses incurred in connection with any disposition of the Shares.
2.3
Restrictive
Legends
.
In
order to reflect the restrictions on disposition of the Shares, the stock
certificates for the Shares will be endorsed with the following restrictive
legend:
THE
SECURITIES REPRESENTED HEREBY ARE SUBJECT TO, AND MAY BE TRANSFERRED ONLY
IN
COMPLIANCE WITH, THAT CERTAIN RESTRICTED STOCK AWARD AGREEMENT, DATED AS
OF
____________, 2005, BETWEEN THE COMPANY AND THE HOLDER OF THESE
SECURITIES.
SECTION
3
FORFEITURE
OF UNVESTED SHARES
3.1
Forfeiture
.
Upon
termination of Grantee's employment or consulting arrangement with the Company,
for any reason, all or any portion of Grantee's Shares in which Grantee has
not
acquired a vested interest in accordance with Section 3.2 (such shares to
be
hereinafter called the "Unvested Shares") will be forfeited and Grantee shall
have no further rights with respect to such Unvested Shares.
3.2
Vesting
.
Unvested Shares shall cease to be Unvested Shares and shall cease to be subject
to forfeiture, and Grantee shall thereupon acquire a vested interest therein
(such shares to be hereinafter called the "Vested Shares") on a pro rata
basis
each month based on the actual number of hours worked from the Effective
Date
through ______________, 200__.
3.3
Additional
Shares or Substituted Securities
.
In the
event of any stock dividend, stock split, recapitalization or other change
affecting the Company's outstanding Common Stock as a class effected without
receipt of consideration, then any new, substituted, or additional securities
or
other property (including money paid other than as a regular cash dividend)
which is by reason of any such transaction distributed with respect to the
Shares (the “Distributed Property”) shall be immediately subject to forfeiture
as provided in this Section 3, but only to the extent the Shares are at the
time
subject to forfeiture. Appropriate adjustments to reflect the distribution
of
such Distributed Property shall be made to the number of Shares
hereunder.
SECTION
4
ESCROW
FOR UNVESTED SHARES
4.1
Deposit
.
Upon
issuance, the certificates for the Unvested Shares shall be deposited in
escrow
with the Company to be held in accordance with the provisions of this Section
4.
The deposited certificates, together with any other assets or securities
from
time to time deposited with the Company pursuant to the requirements of this
Agreement, shall remain in escrow until such time or times as the certificates
(or other assets and securities) are to be released or otherwise surrendered
for
cancellation in accordance with subsection 4.3.
4.2
Recapitalization
.
Any
cash dividends on the Shares (or other securities at the time held in escrow)
shall be paid directly to Grantee and shall not be held in escrow. However,
any
Distributed Property shall be immediately delivered to the Company to be
held in
escrow under this Section 4, but only to the extent the Shares are at the
time
subject to the escrow requirements of subsection 4.1.
4.3
Release/Surrender
.
The
Shares, together with the Distributed Property and any other assets or
securities held in escrow hereunder, shall be subject to the following terms
and
conditions relating to their release from escrow or their surrender to the
Company for repurchase and cancellation:
(i)
Should
Grantee's Unvested Shares be forfeited as provided in subsection 3.1 hereof,
then the escrowed certificates for such Unvested Shares (together with any
other
assets or securities issued with respect thereto) shall be delivered to the
Company for cancellation, and Grantee shall cease to have any further rights
or
claims with respect to such Unvested Shares (or other assets or
securities).
(ii)
As
the
interest of Grantee in Shares (or any other assets or securities issued with
respect thereto) vests in accordance with the provisions of Schedule I, the
certificates for such Vested Shares (as well as all other vested assets and
securities) shall be released promptly from escrow and delivered to
Grantee.
SECTION
5
SPECIAL
TAX ELECTION
5.1
Section
83(b) Election
.
Grantee
understands that under Section 83 of the Internal Revenue Code of 1986, as
amended (the "Code"), the fair market value of the Shares on the date any
forfeiture restrictions applicable to such Shares lapse will be reportable
as
ordinary income to Grantee in the tax year in which such restrictions lapse.
For
this purpose, the term "forfeiture restrictions" includes the automatic
forfeiture of Unvested Shares as provided in subsection 3.1 hereof. Grantee
understands, however, that he may elect to be taxed at the time the Shares
are
acquired hereunder, rather than when and as such Shares cease to be subject
to
such forfeiture restrictions, by filing an irrevocable election under Section
83(b) of the Code with the Internal Revenue Service within thirty (30) days
after the date of this Agreement. If this irrevocable election is made, Grantee
will be taxed on the fair market value of the Shares as of the date of this
Agreement (determined without taking into account any forfeiture restrictions).
The form for making this irrevocable election is attached as
Exhibit
A
hereto.
In the event that Grantee makes this irrevocable election, and Grantee's
Unvested Shares are forfeited pursuant to subsection 3.1 hereof, Grantee
will
not be entitled to deduct the income, if any, previously recognized as income
with respect to those shares as a result of the election. Grantee understands
that failure to make this filing within the thirty (30) day period will result
in the recognition of ordinary income by Grantee as the forfeiture restrictions
lapse. GRANTEE ACKNOWLEDGES THAT IT IS GRANTEE'S SOLE RESPONSIBILITY, AND
NOT
THE COMPANY'S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b), EVEN IF GRANTEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON SUCH
GRANTEE'S BEHALF.
This
summary is necessarily incomplete, and the tax laws and regulations are subject
to change. Grantee should consult a tax advisor before making an election
under
Section 83(b) of the Code.
SECTION
6
GENERAL
PROVISIONS
6.1
No
Employment or Service Contract
.
Nothing
in this Agreement shall confer upon Grantee any right to employment with
the
Company.
6.2
Notices
.
All
notices, requests, demands, and other communications under this Agreement
shall
be in writing and shall be deemed to have been duly given on the date of
service
if served personally on the party to whom notice is to be given, on the date
of
transmittal of service via telecopy to the party to whom notice is to be
given
(with a confirming copy being delivered within 24 hours thereafter), or on
the
third day after mailing if mailed to the party to whom notice is to be given,
by
first class mail, registered or certified, postage prepaid, or via overnight
courier providing a receipt and properly addressed. Notices to the Company
shall
be addressed to AeroGrow International, Inc., 900 28th Street, Suite 201,
Boulder, Colorado 80303, Attention: Secretary. Notices to Grantee shall be
sent
to the latest address of Grantee shown on the records of the Company. Any
party
may change its address for purposes of this section by giving notice of the
new
address to each of the other parties in the manner set forth above.
6.3
No
Waiver
.
No
waiver of any breach or condition of this Agreement shall be deemed to be
a
waiver of any other or subsequent breach or condition, whether of like or
different nature.
6.4
Governing
Law
.
This
Agreement shall be governed by and construed in accordance with the laws
of the
State of Colorado for all purposes and in all respects, without giving effect
to
the conflict of law provisions thereof.
6.5
Counterparts
.
This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed to be an original and enforceable against the parties actually executing
such counterparts, but all of which together shall constitute one and the
same
instrument.
6.6
Successors
and Assigns
.
The
provisions of this Agreement shall inure to the benefit of, and be binding
upon,
the Company and its successors and assigns and Grantee and Grantee's legal
representatives, heirs, legatees, distributees, assigns and transferees by
operation of law, whether or not any such person shall have become a party
to
this Agreement and have agreed in writing to join herein and be bound by
the
terms and conditions hereof.
6.7
Integration;
Amendment
.
This
Agreement, the Plan and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement among the parties with regard
to
the subjects hereof and thereof, and supersede any previous agreement or
understanding between or among the parties with respect to such subjects.
No
party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth
herein
or therein. Except as expressly provided herein neither this Agreement nor
any
term hereof may be amended, waived, discharged or terminated other than by
a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
6.8
Severability
.
In the
event that any provision of this Agreement becomes or is declared by a court
of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided
that no
such severability shall be effective if it materially changes the economic
benefit of this Agreement to any party.
6.9
Titles
and Subtitles
.
The
titles and subtitles used in this Agreement are used for convenience only
and
are not considered in construing or interpreting this Agreement.
IN
WITNESS WHEREOF, the parties have executed this Agreement on the day and
year
first indicated above.
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AEROGROW
INTERNATIONAL, INC.
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By:
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Name:
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Title:
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GRANTEE:
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Signature:
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Name:
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EXHIBIT
A
SECTION
83(B) TAX ELECTION
This
statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1)
The
taxpayer who performed the services is:
Name:
Address:
Taxpayer
Social Security No.:
Taxable
Year: Calendar Year ________
(2)
The
property
with respect to which the election is being made is _______ shares of the
common
stock, par value $0.00l per share, of AeroGrow International, Inc. (the
"Unvested Shares").
(3)
The
Unvested Shares were granted on ________, 2005.
(4)
The
Unvested Shares are subject to forfeiture if for any reason taxpayer's services
with the issuer are terminated. The forfeiture restriction lapses in a series
of
installments.
(5)
The
fair
market value at the time of transfer (determined without regard to any
restriction other than a restriction which by its terms will never lapse)
is
$_____ per share.
(6)
The
amount paid for such Unvested Shares is $0.00 per share.
(7)
A
copy of
this statement was furnished to AeroGrow International, Inc. for whom taxpayer
rendered the services underlying the transfer of the Unvested
Shares.
(8)
This
statement is executed as of __________, 2005.
Spouse
(if any):
______________________________
Taxpayer:
_______________________________
AERO
GROW
INTERNATIONAL, INC.
LOCK
UP
AGREEMENT
______________,
2006
Keating
Securities, LLC
5251
DTC
Parkway, Suite 1090
Greenwood
Village, Colorado 80111-2739
Dear
Sirs:
The
undersigned is a holder of shares of common stock, and/or options, warrants,
or
other rights to acquire common stock, of Aero Grow International, Inc., a Nevada
corporation (the “Company”). The undersigned understands that the Company
intends to conduct an offering (the “Offering”) of shares of common stock and
common stock purchase warrants, through Keating Securities, LLC (the “Placement
Agent”) and one or more other selling agents, to raise a minimum of $5,000,000
and a maximum of $12,000,000 on a best efforts basis. The undersigned recognizes
the benefits that the Company will derive from the Offering and enters into
this
agreement as an inducement, and for and in consideration of the Placement
Agent’s willingness to conduct the Offering.
(i)
The
undersigned may sell or transfer up to 50% of the Securities (defined below)
beginning 12 months after the effective date of the Registration Statement
(defined below) and 100% of the Securities 18 months after the effective date
of
the Registration Statement.
(ii)
The
undersigned will not transfer (as set forth below) any Securities in the Company
from the date of this letter until the 12 month anniversary of the effective
date of the registration statement that includes the common stock sold in the
Offering (“Registration Statement”), directly or indirectly, through an
“affiliate” or “associate” (as such terms are defined in the General Rules and
Regulations under the Securities Act of 1933, as amended (the “Securities
Act”)), a family member or otherwise, (i) offer, (ii) sell, (iii) pledge, (iv)
hypothecate, (v) grant an option for sale or (vi) otherwise dispose of, or
(vii)
transfer or grant any rights with respect thereto in any manner (either
privately or publicly pursuant to Rule 144 of the General Rules and Regulations
under the Securities Act, or otherwise), or (viii) enter into any swap or any
other agreement or any hedging transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the Securities
(as defined below), whether any such swap or hedging transaction is to be
settled by delivery of the Securities, in cash or otherwise, with respect to
any
and all shares of common stock of the Company or any other securities of the
Company, including but not limited to any securities convertible or exchangeable
into shares of common stock of the Company or options, warrants or other rights
to acquire common stock of the Company directly or indirectly owned or
controlled by the undersigned on the date hereof or hereafter acquired by the
undersigned pursuant to a stock split, stock dividend, recapitalization or
similar transaction (collectively, the “Securities”).
(iii)
The
undersigned agrees to enter into any agreement required by any state securities
authority or any regulatory or other authority (including the American Stock
Exchange, Nasdaq or other national stock exchange on which the securities of
the
Company may be listed or subject to an application for listing), if mutually
requested by the Placement Agent and the Company.
(iv)
The
undersigned may sell or otherwise transfer any or all of their Securities in
a
private transaction at any time, provided the undersigned provides to the
Placement Agent and the Company an agreement of any acquirer of the Securities
subject hereto in which the new holder agrees to the same terms as provided
in
this lock up agreement.
This
lock-up agreement does not extend to any Securities of the Company, including
common stock, purchased by the undersigned in an open market
transaction.
The
Securities may be released from this lock-up agreement in such type and number
as mutually determined by the Placement Agent and Company. Any release of the
Securities of the undersigned may be in conjunction with the release of
Securities of other persons subject to similar lock-up agreements. The
undersigned understands and agrees that such releases among persons subject
to
lock-up agreements may be arbitrary as to time, amount and
Security.
In
addition to the release in the immediately preceding paragraph
,
if the
Company determines additional funding is needed and engages an independent
third
party to act as an underwriter or placement agent of the Company’s securities
for capital raising purposes, of not less than $8,000,000 gross proceeds, by
means of either a public offering or private placement (“New Offering”), then
the underwriter or placement agent of the New Offering may require the Placement
Agent and Company to release from this and similar lock up agreements an amount
of Securities not to exceed 10% of that number of the equity securities or
underlying equity securities represented by the New Offering, provided further
that such released Securities may be included on the public offering
registration statement either as additional underwritten securities or as
securities being offered by selling shareholders after the public offering
or
included on any registration statement for securities sold in the private
placement. Further, the underwriter or placement agent has the right to
designate to the Placement Agent and the Company the Securities to be released
from this and similar lock up agreements.
This
Agreement shall terminate (i) 18 months after the effective date of the
registration statement which includes the shares of the Company’s common stock
sold in the Offering, or (ii) in the event the Offering does not close on or
before April 30, 2006.
The
undersigned hereby agrees to the placement of a legend on the certificates
representing the Securities subject to this agreement to indicate the
restrictions on resale of the Securities imposed by this agreement and/or the
entry of stop transfer orders with the transfer agent and the registrar of
the
Company's securities against the transfer of the Securities except in compliance
with this agreement.
Very
truly yours,
_______________________________
(Signature)
________________________________
(Print
Name)
EXHIBIT
10.8
PLACEMENT
AGREEMENT
May
27,
2005
Keating
Securities, LLC
5251
DTC
Parkway, Suite 1090 Greenwood Village, CO 80111
|
|
Re:
|
Private
placement offering of up to $3,000,000 of securities ("Offering"),
consisting of up to 300 units at an offering price of $10,000 per
unit,
each unit comprised of a 10% unsecured convertible promissory note
of
AeroGrow International, Inc. in the principal amount of $10,000
and 2,000
five-year warrants, each warrant providing for the purchase of
one share
of the Company's common stock at the exercise price of $5.01 per
share
|
Dear
Sirs:
AeroGrow
International, Inc. ("Company") proposes to offer, offer for sale and sell
up to
$3,000,000 of securities, consisting of 300 units ("Units") at an offering
price
of $10,000 per Unit, to accredited investors. Each Unit will be comprised
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 at the exercise price
of
$5.01 per share ("Warrants").
In
the
event the Company completes a registered public offering of its securities
("Primary Offering") under the Securities Act of 1933, as amended ("Securities
Act") on or before June 30, 2006, the principal amount of the Note will be
convertible, at the holder's election, into the same securities (including
securities which are part of any unit) and at the same price as those being
offered in the Primary Offering. The Company agrees to register for re-offer
and
re-sale, the securities into which the Note may be converted ("Conversion
Securities"), on the registration statement filed by the Company with respect
to
the securities being offered in the Primary Offering. The Note may be converted,
in whole or in part, by the Holder at any time commencing on the earlier
of: (i)
the date 45 days after the effectiveness of the Primary Offering, or (ii)
the
date thirty days prior to the maturity date of the Note ("Commencement Date"),
and ending on the date the Note is paid in full by the Company. The Company
may
not redeem the Note and will have no right to pre-pay the Note without the
prior
consent of the holder.
The
Company agrees to file, on one occasion, a registration statement under the
Securities Act to register the common stock underlying the Warrants ("Underlying
Common Stock") and, to the extent the Company files a registration statement
with respect to the Primary Offering, the Underlying Common Stock shall be
included on such registration statement. The Warrants will be exercisable,
in
whole or in part, beginning on the earlier of (i) the date 45 days after
the
effectiveness of the Primary Offering, (ii) the date any other registration
statement on which Underlying Common Stock is registered for re-offer and
re-sale are included becomes effective; or (iii) the maturity date of the
Note
("Commencement Date"), and ending on the fifth anniversary of the final closing
of the Offering.
The
Company, the Units, the Note and the Warrants will be more fully described
in a
private placement memorandum to completed by the Company prior to commencement
of the Offering and any supplements or amendments thereto (the "Memorandum").
The Company desires to employ Keating Securities, LLC (the "Placement Agent")
as
its exclusive placement agent to offer, offer for sale and sell the Units
subject to all of the terms and conditions of this Agreement and subject
to the
terms and conditions contained in the Memorandum.
For
purposes of this Agreement, the terms and conditions of the Units and underlying
Note and Warrants assume that the Company has completed, and therefore gives
effect to, the proposed 1-for-5 reverse stock split of the Company's common
stock. The Company agrees that it will complete the reverse stock split prior
to
the initial closing of this Offering.
1.
Description
of Offering and Appointment of Agent.
(a)
Appointment.
On the
basis of the representations, warranties and covenants herein contained,
but
subject to the terms and conditions herein set forth, the Placement Agent
is
hereby appointed the exclusive agent of the Company during the Offering Period
(as defined herein) for the purpose of finding subscribers for sale of up
to
$3,000,000 of Units on a "best efforts" basis. The Placement Agent may, in
its
sole discretion, appoint participating agents to offer and sell the Units
as
subagents of the Placement Agent (the "Participating Agents") pursuant a
certain
dealer agreement between the Placement Agent and each Participating Agent
("Dealer Agreement"). A minimum purchase of three Unit per investor is required,
unless the Company and Placement Agent agree to allow a minimum purchase
of one
or two Units per investor, provided, in no case, shall any fractional Units
be
sold in the Offering. The Placement Agent acknowledges that the Company may
limit its acceptance of subscriptions in any manner it deems prudent in order
to
provide for the timely use of subscriber funds and may reject any subscription
for any reason, and the Placement Agent agrees that any such rejection of
a
subscription obtained by the Placement Agent or by the Participating Agents
shall be deemed not to be a sale made by the Placement Agent or by the
Participating Agents. The Placement Agent further acknowledges that (i) all
wire
transfers of subscription funds will be sent to a segregated account maintained
by the Company at Steele Street State Bank ("Segregated Account"), (ii) all
subscribers' checks shall be made payable to and deposited into the Segregated
Account, (iii) all subscribers' check will be transmitted directly to Steele
Street State Bank by noon of the next business day after receipt by the
Placement Agent or the Participating Agents, (iv) all executed subscription
documents shall be promptly sent to the Placement Agent, (v) no funds shall
be
disbursed from the Segregated Account until such time as the subscription
has
been accepted by the Company and approved by the Placement Agent, and (vi)
Steele Street State Bank shall disburse funds from the Segregated Account
only
upon the written direction signed by the Company and the Placement
Agent.
(b)
Offering
Period.
The
"Offering Period" shall mean that period during which the Units are offered
for
sale, commencing on the date of the Memorandum and continuing for forty-five
(45) days thereafter, or such later date mutually agreed to by the Company
and
Placement Agent but not later than August 15, 2005 (the "Termination Date");
provided, however, that the Offering Period shall in all events terminate
upon
the sale of all of the Units.
(c)
Acceptance.
The
Placement Agent hereby accepts such agency and agrees on the terms an conditions
herein set forth to use the Placement Agent's best efforts during the Offering
Period to find subscribers for the Units.
(d)
Private
Placement Offering.
The
Offering will not be registered under federal securities laws or the securities
laws of any state. The Company will rely upon exemptions from registration
under
federal securities laws and state securities acts (the "State Acts"). With
respect to federal securities laws, the Company will rely on one or more
exemptions from registration for sales to accredited investors (as defined
in
Section 2(15) of the Securities Act and Rule 501 promulgated thereunder),
including, without limitation, exemptions from registration provided by Sections
3(b), 4(2) and/or 4(6) of the Securities Act, and Rule 506 of Regulation
D,
promulgated as part of the rules and regulations under the Securities Act
(the
"Rules and Regulations"). With respect to the State Acts, the Company will
not
be subject to them pursuant to preemption based on Section 18 of the Securities
Act or will rely upon limited offering exemptions of certain states approved
by
the Company. The Company shall use its best efforts to qualify or register
the
Units for sale, or exempt the Units from qualification of registration, under
the State Acts as requested by the Placement Agent, and the Company shall
continue such qualifications in effect for so long as may be necessary to
complete the Offering. The Company or its counsel shall provide Placement
Agent
with all applications, forms and documents filed in each jurisdiction where
the
Units are to be qualified or registered or qualified or offered in an exempt
transaction under the State Acts. The Offering of the Units shall be at the
offering price and upon the terms and conditions set forth in the Memorandum
and
the subscription agreement which is included in the subscription documents
to be
delivered with the Memorandum, and on the basis of the representations and
warranties therein contained, and subject to the terms and conditions herein
set
forth.
(e)
Closing.
All cash
proceeds from the subscriptions (the "Funds") will be deposited into the
Segregated Account maintained by the Company at Steele Street State Bank.
After
the Company's acceptance of subscriptions in such amount as mutually determined
by the Company and the Placement Agent, and subject to the Placement Agent's
approval of such subscriptions, on a date to be determined by the Company
and
Placement Agent (the "First Closing Date"), a closing will take place at
the
offices of the Company's legal counsel or another location as determined
by the
Company, and the Notes and Warrants evidencing the subscriptions in the forms
shown in the Memorandum will be duly executed and issued by the Company in
accordance with the terms of the Memorandum and promptly delivered to the
investors (the "First Closing"). If the First Closing Date shall precede
the
Termination Date, all further proceeds from subscriptions will be deposited
into
the Segregated Account and any additional closings will take place at the
offices of the Company's legal counsel or another location as determined
by the
Company and the Placement Agent (the "Additional Closings"), on a date or
dates
determined by the Company and the Placement Agent (the "Additional Closing
Date(s)"). The Notes and the Warrants will be executed, issued and delivered
in
the same manner as at the First Closing.
(f)
Other
Covenants.
In
connection with the Offering, the Company and Placement Agent each agree
as
follows: (i) the Units will be offered and sold only to accredited investors
pursuant to the registration exemption provided by Sections 3(b), 4(2) and/or
4(6) of the Securities Act and Rule 506 of Regulation D, as and to the extent
applicable to the Offering, and will otherwise comply with the applicable
laws
and regulations of any jurisdictions in which the Units are offered or sold,
(ii) neither the offer, sale nor delivery of the Units in conformity with
the
terms hereof will violate Section 5 of the Securities Act, as currently in
effect, and (iii) neither the Company nor Placement Agent has taken, nor
will
either party take any action which conflicts with the conditions and
requirements of, or which would make unavailable with respect to the sale
of the
Units, the exemptions from registration available pursuant to Rule 506 of
Regulation D or Section 3(b), 4(2) and/or 4(6) of the Securities Act and
neither
the Company nor Placement Agent knows of any reason why any such exemption
would
be otherwise unavailable to it.
(g)
Information
to be Supplied.
The
Company will furnish or cause to be furnished to Placement Agent such
information as Placement Agent reasonably believes appropriate to its assignment
or necessary in connection with its assistance in the preparation of, review
of,
or inclusion in, the Memorandum. It is also understood that the Company may
make
available to Placement Agent and the offerees of the Units additional material,
data or other information relating to the Company to the extent such information
can be obtained without unreasonable effort or expense and is not otherwise
confidential or a trade secret of the Company (collectively, as limited the
"Company Data"). The Company recognizes and confirms that (a) in performing
the
services contemplated by this Agreement, Placement Agent will use and rely
primarily on the Memorandum and Company Data made available to Placement
Agent
and on other information available from generally recognized public sources
without having independently verified the same; (b) the contents of the
Memorandum and the Company Data are the sole responsibility of the Company,
and
Placement Agent does not assume any responsibility for the accuracy or
completeness of the Memorandum or the Company Data, and will not undertake
to
verify independently any of their accuracy or completeness; and (c) Placement
Agent will furnish a copy of the Memorandum, and each supplement or amendment
thereto, to each purchaser of Units, and Placement Agent will not employ
any
written material other than the Memorandum, each supplement and amendment
thereto and the Company Data.
2.
Representations
and Warranties of the Company.
The
Company represents and warrants to, and agrees with, the Placement Agent
and the
Participating Agents (if any) as follows:
(a)
The
Company has been duly incorporated, and validly exists as a corporation in
good
standing under the laws of the state of Nevada.
(b)
The
Company has complied or will comply with Sections 3(b), 4(2) and/or 4(6)
of the
Securities Act, with all of the provisions of the Rules and Regulations
promulgated under the Securities Act, specifically including the provisions
of
Regulation D and Rule 506 thereunder, applicable to them in connection with
the
offering and sale of the Units, and with all States Acts and regulations
applicable to them in connection with the offering and the sale of the
Units.
(c)
The
Memorandum, and any amendments or supplements thereto, as of the date hereof,
and at all subsequent times through the First Closing Date and any Additional
Closing Dates, shall in all material respects conform to all applicable
provisions of the Securities Act, the Rules and Regulations and the State
Acts,
and shall not contain any untrue statement of a material fact or omit to
state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; provided however, that this representation
and warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with written information furnished to the Company
by or
on behalf of the Placement Agent and any Participating Agents for use with
reference to the Placement Agent and any Participating Agents in connection
with
preparation of the Memorandum.
(d)
The
execution on performance of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly authorized by the Company
and,
at the time of its execution and performance, shall not constitute or result
in
any breach or violation (other than any breach or violation which shall have
been waived or consented to in writing) of any of the terms, provisions or
conditions of, or constitute a default under, any indenture, mortgage, deed
of
trust, note, contract, commitment, instrument or document to which it or
any of
its properties is subject, the Articles of Incorporation or Bylaws or
corresponding documents of the Company, or any order, arbitration award,
or
judgment, of any court of governmental agency or body having jurisdiction
over
the Company or any of its activities or properties; and no consent, approval,
authorization or order of any court or governmental agency or body is required
for the consummation of the transactions contemplated hereby.
(e)
The
Units, the Notes, the Warrants and the Agent Warrants shall be duly authorized
and shall be validly issued and binding obligations of the Company, and shall
conform to the description thereof contained in the Memorandum.
(f)
The
Company has not been subject to any order, judgment or decree of any court
of
competent jurisdiction temporarily, preliminary or permanently enjoining
such
person for failing to comply with Section 503 of Regulation D.
(g)
The
Company represents and warrants that at all times from the respective dates
that
the Memorandum (including, without limitation, any supplement or amendment
thereto) and the Company Data, if any, are furnished or made available by
the
Company to Placement Agent or, either directly or through Placement Agent,
to
offerees or any of their representatives, such Memorandum (including, without
limitation, any supplement or amendment thereto) and Company Data will not,
taken separately or in any combination as provided to Placement Agent or
any
offeree or its representatives, contain any untrue statement of a material
fact
or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading,
(h)
The
Company will furnish Placement Agent from time to time, such number of copies
of
the Memorandum and Company Data, any exhibits thereto and agreements and
documents referred to therein, as Placement Agent may reasonably
request.
(i)
If
any
event shall occur or condition exist as a result of which it is necessary
or
advisable, in the opinion of the Company or Placement Agent, to amend or
supplement the Memorandum in order that the Memorandum will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statement therein not misleading in light of the
circumstances existing at the time it is delivered to prospective purchasers,
the Company will forthwith prepare and furnish to Placement Agent such number
of
copies as Placement Agent may reasonably request of an amendment or supplement
to the Memorandum (in form and substance satisfactory to Placement Agent
and its
counsel) that will ensure that the Memorandum does not contain any misstatements
or omissions and is not in any respect misleading and provide the same to
offerees.
(j)
The
Company will advise Placement Agent promptly of (A) the occurrence of any
event
or the existence of any condition known to the Company referred to in Section
2(i) hereof; (B) the receipt by the Company of any communication, stop order
or
any order from the SEC, any state securities commissioner or any other domestic
or foreign securities or financial regulatory authority or self-regulatory
organization concerning the offering of the Units; and (C) the commencement
of
any lawsuit or proceeding to which the Company is a party relating to the
Units
or the Offering. The Company shall make every reasonable effort to prevent
the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof as promptly as possible.
(k)
The
Company will (A) make available to each offeree of the Units the Memorandum;
and
(B) provide each offeree the opportunity to ask questions of, and receive
answers from, the officers and employees of the Company concerning the terms
and
conditions of the Offering and to obtain any other additional information
about
the Company and the Units to the extent the officers and employees of the
Company possess the same or can acquire it without unreasonable effort or
expense and it is not otherwise confidential or trade secret information.
The
Company may require appropriate confidentiality and non-disclosure agreements
as
it is advised by counsel prior to the disclosure of any information not
otherwise contained in the Memorandum.
(l)
The
Company
is not in default in the performance or observance of any material obligation
(A) under its charter or its by-laws, or any indenture, mortgage, contract,
purchase order or other agreement or instrument to which the Company is a
party
or by which it or any of its property is bound or affected; or (B) with respect
to any order, writ injunction or decree of any court of any Federal, state,
municipal or other governmental department, commission, board, bureau, agency
or
instrumentality, domestic or foreign, and there exists no condition, event
or
act which constitutes, nor which after notice, the lapse of time or both,
could
constitute a default under any of the foregoing, which in either case would
have
a material adverse effect on the current business of the Company.
(m)
The
Company has full right, power and authority to execute and deliver this
Agreement, and any document, certificate or instrument required hereunder
or to
be executed or delivered at any Closing in connection with the Offering
(collectively, the "Documents"), and to perform all of its obligations hereunder
and thereunder or contemplated hereby or thereby. The Documents have been,
or
will be, duly executed and delivered by the Company and the execution and
delivery by the Company of the Documents and the performance of all of its
obligations have been duly authorized by all requisite corporate action by
the
Company, and each Document (assuming the due authorization and execution
of the
other parties thereto) executed and delivered and obligation performed
constitutes, or will constitute, the legal, valid and binding obligation
of the
Company enforceable in accordance with its respective terms.
(n)
The
(A)
authorization, execution, delivery and performance of the Documents; and
(B)
authorization, issuance, sale and delivery of the Units, the Note, the Warrants
and the Agent Warrants will not (1) violate any provision of law or statute
or
any order of any court or other governmental agency applicable to the Company;
or (Z) conflict with or result in any breach of any of the terms, conditions
or
provisions of, or constitute (with due notice or lapse of time or both) a
default under, or result in the creation of any material lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company under its charter or by-laws, or any indenture, mortgage, lease
agreement or other material agreement or instrument to which the Company
is a
party or by which it or any or its property is bound or affected except for
violations, conflicts breaches and defaults that would not, individually
or in
the aggregate materially and adversely affect the Company, Placement Agent
or
any investor in this Offering.
(o)
The
Company has all requisite corporate power and authority to issue, sell and
deliver the Units, the Note, the Warrants and the Agent Warrants and such
issuances, sales and deliveries have been duly authorized by all requisite
corporate action of the Company and when so issued, sold and delivered the
Units, the Note, the Warrants and the Agent Warrants will be duly and validly
issued and outstanding, valid and binding obligations of the Company, fully
paid
and nonassessable, with no personal liability attaching to the ownership
thereof
and will be free and clear of all liens, charges, claims, encumbrances,
restrictions or preemptive or any other similar rights imposed by or through
the
Company, except as waived prior to the Closing or as disclosed herein and
as
shall be disclosed in the Memorandum, and the Company shall have paid all
taxes,
if any, in respect of the issuance thereof. Assuming that the investors met
such
suitability standards as are specified by the Company and the representations
and warranties of Placement Agent are accurate as to the method of offering,
the
offer and sale of the Units, the Note, the Warrants and the Agent Warrants
are
exempt from the registration requirements of the Securities Act and the rules
and regulations promulgated thereunder and the state "blue sky" laws and
the
Units Securities will be issued in compliance with all applicable Federal
and
state securities laws.
(p)
No
permit, consent, approval, authorization, order of, or filing with, any court
or
governmental authority is required in connection with the execution and delivery
by the Company of this Agreement or to consummate the Offering, except that
the
offer and sale of the Units in certain jurisdictions may be subject to the
provisions of the securities or "blue sky" laws of such jurisdictions and
the
federal securities laws.
(q)
There
is
no action suit proceeding before or by any United States court or governmental
agency or body, now pending or threatened, against or affecting the Company,
or
any of its properties, which would reasonably be anticipated to result in
any
material adverse change in the condition (financial or otherwise) or in the
earnings, current business, current business plan as described in the
Memorandum, properties or assets of the Company and its subsidiaries (a
"Material Adverse Effect").
(r)
The
Company has (A) duly and timely filed all tax returns required to be filed
by
the Company under applicable law that include or relate to the Company, its
income, assets, payroll, operations or business, which tax returns are true,
correct and complete in all material respects; (B) duly and timely paid,
in
full, all taxes which are currently due and payable and for which the Company
is
liable; or (C) adequately reserved for taxes that have not been paid or are
in
dispute.
(s)
The
Company is not in default under any agreement, lease, license contract or
commitment, whether oral or written including, without limitation, agreements
with employees and consultants ("Company Agreements") to which the Company
is a
party or by which any of its assets are bound, and there is no event known
to
the Company that, with notice, or lapse of time, or both, would constitute
a
default by any party to any Company Agreement or give any party the right
to
terminate or modify any of the same and the Company has not received notice
that
any party to any Company Agreement intends to cancel or terminate any Company
Agreement or to exercise or not to exercise any renewal or extension options
under any Company Agreement, except as to any events described in this
subparagraph that would not have a Material Adverse Effect.
(t)
The
Company holds, and is in compliance with, all permits, licenses, registrations
and authorizations required by it in connection with the conduct of the business
of the Company as currently conducted under all Federal, state and local
laws,
rules and regulations (the "Permits"), except where the failure to be in
compliance has not had, and is not reasonably expected to have, a Material
Adverse Effect.
(u)
The
Company's financial statements, which may be unaudited, that will be included
in
the Memorandum, will be true and correct and fairly present, in accordance
with
generally accepted accounting principles, consistently applied, the financial
condition of the Company as of the dates specified.
(v)
Since
December 31, 2004, the Company has conducted its business in the ordinary
course
and has not suffered any Material Adverse Effect. The Company does not have
any
liabilities or obligations (whether actual or accrued, accruing or contingent,
or otherwise) which, individually or in aggregate, would be deemed material,
other than those set forth in the balance sheet included within the financial
statements included in the Memorandum, and those incurred, in the ordinary
course of its business, since December 31, 2004.
(w)
The
capitalization of the Company shall be correctly and completely described
in the
Memorandum and, except as shall be disclosed therein, no person has any right
of
first refusal, preemptive right, right of participation, or any similar right
to
participate in the transactions contemplated by the Documents. There are
no
outstanding options, warrants, rights to subscribe to, calls or commitments
of
any character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire, any shares of capital stock of the Company, or
contracts, commitments, understandings or arrangements by which the Company
is
or may become bound to issue shares of capital stock, except as shall be
reflected in the Memorandum. All of the outstanding shares of capital stock
of
the Company are validly issued, fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and none of such
outstanding shares of capital stock was issued in violation of any pre-emptive
rights or similar rights to subscribe for or purchase securities.
(x)
The
Company has rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses
and
other similar rights that are necessary or material for use in connection
with
its business (collectively, the "Intellectual Property Rights"), except to
the
extent that the failure to have such Intellectual Property Rights, individual
or
in the aggregate, would not have or reasonably be expected to result in a
Material Adverse Effect. No claims have been made or threatened by any third
party to the effect that Intellectual Property Rights used by the Company
violate or infringe upon the rights of such claimant. To the actual knowledge
of
the Company, all of the Intellectual Property Rights are enforceable and
there
is no existing infringement by another person of any of the Intellectual
Property Rights.
(y)
At
each
Closing, the Company will deliver, or cause to be delivered, to Placement
Agent,
in each case in form and substance satisfactory to Placement Agent and its
counsel: (A) a certificate of the Company signed by the Chief Executive Officer
and the Chief Financial Officer thereof certifying (1) that the representations
and warranties of the Company contained in this Agreement are true and accurate
in all material respects as of the Closing; and, (2) that the representations
and warranties of the Company contained in each subscription agreement entered
into with a prospective purchaser of the Units are true and correct in all
material respects as of the date of such certificate, except to the extent
any
such representation or warranty was expressly made as of any other date,
in
which case such representation and warranty was true anal correct in all
material respects as of such other date; and at the Closing, and (B) an opinion
of the Company's counsel, as to matters reasonably requested by the Placement
Agent. In rendering the opinions required herein, counsel and special securities
counsel to the Company may, as to factual matters, rely upon certificates,
statements, letters, representations and affidavits of officers of the Company,
its officers, any other records of the Company, certificates of public
officials, and letters of independent certified public accountants. With
respect
to the opinions required herein, "known to such counsel", "to the best knowledge
of such counsel" or any like phrase or reference shall mean to the best of
knowledge of such counsel after due inquiry and investigation; "due inquiry
and
investigation" shall include only (i) discussions, inquiries and conferences
with officials and agents of the Company occurring in connection with such
counsel's representation of the Company, (ii) review of certain corporate
records documents and proceedings of the Company as provided to such counsel
by
the Company and (iii) review of files maintained by such counsel relating
to the
Company; "due inquiry and investigation" shall not mean or imply any independent
verification of any factual matter of which such counsel becomes aware as
a
result of the foregoing discussions, inquiries and reviews.
(z)
The
Company further agrees that it will not consummate the Offering unless it
delivers or causes to be delivered the items described in Section 2(m) to
Placement Agent at each Closing. The consummation of the Offering and the
release of the investor funds from the Segregated Account shall be further
subject to any other conditions set forth in the Memorandum or the subscription
agreement entered into by each purchaser of Units.
(aa)
The
Company will be responsible for and comply with all applicable notification
and
fee requirements to qualify the offering and sale under the state securities
or
"blue sky" laws of such jurisdiction in which any sales pursuant to the offering
may be transacted and as may otherwise be required or as requested by Placement
Agent provided that, in connection therewith, the Company shall not be required
to qualify as a foreign corporation.
3.
Representations
and Warranties of the Placement Agent.
The
Placement Agent represents and warrants to, and agrees with, the Company
as
follows:
(a)
The
Placement Agent is a limited liability duly organized, validly existing and
in
good standing under the laws of the jurisdiction in which it was formed,
with
all requisite power and authority to enter into this Agreement and to carry
out
your obligations hereunder. This Agreement (i) has been duly authorized,
executed and delivered by the Placement Agent, (ii) constitutes legal, valid
and
binding obligation of the Placement Agent, and (iii) subject to applicable
bankruptcy, insolvency and other laws affecting the enforceability of creditors'
rights generally, is enforceable as to the Placement Agent in accordance
with
its terms, specific performance hereof being limited by general principles
of
equity and the enforceability of the indemnification provisions
hereof.
(b)
The
execution, delivery and performance of this Agreement by the Placement Agent
and
the consummation by the Placement Agent of the transactions contemplated
hereby
and by the Memorandum will not conflict with or result in the Placement Agent's
breach or violation of any of the terms or provisions of, or constitute a
default in any material respect under, (i) any indenture, mortgage, deed
of
trust, loan agreement, lease or other agreement or instrument to which the
Placement Agent is a party or to which the Placement Agent or its property
is
subject, (ii) the Placement Agent's charter or its operating agreement or
(iii)
any statute, judgment, decree, order, rule or regulation applicable to the
Placement Agent of any court or governmental agency or body having jurisdiction
over the Placement Agent.
(c)
The
Placement Agent is, and at all times through the date of the final sale of
a
Unit shall remain, duly registered pursuant to the provisions of the Securities
Exchange Act of 1934, as amended ("Exchange Act") as a broker-dealer and
duly
registered as a broker-dealer in those states in which the Placement Agent
is
required to be so registered in order to carry out the Offering as contemplated
by the Memorandum; the Placement Agent is, and at all times through the date
of
the final sale of a Unit shall remain, a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); the Placement Agent will
not
reallow discounts or pay commissions or other compensation for participation
in
the distribution of the Offering in the United States to any broker-dealer
which
is not a member of the NASD, the Placement Agent shall act as independent
contractor, and nothing herein shall constitute the Placement Agent an employee
of the Company; the Placement Agent shall not make sales of Units to
discretionary accounts.
(d)
In
connection with the offer, offer for sale and sale of the Units, the Placement
Agent (and its representatives and agents) shall conform to and comply with
(i)
the provisions of the Rules of Fair Practice of the NASD, (ii) applicable
provisions of federal law, including without limitation the Securities Act,
the
Exchange Act and the Rules and Regulations, and (iii) the State Acts and
the
rules and regulations thereunder, including without limitation those referred
to
in such letters regarding state securities and "blue sky" matters ("Blue
Sky
Letters") as are prepared by counsel for the Company and sent to the Placement
Agent from time to time, with regard to, among other things, the period during
which and conditions under which the Units may be offered, offered for sale
and
sold in various states; the Placement Agent shall not distribute the Memorandum
or otherwise commence the Offering in any jurisdiction without prior
confirmation from the Company or its counsel that the Offering may be commenced
under applicable securities laws, rules and regulations.
(e)
The
Placement Agent will use its best efforts to procure subscribers for the
Units
and will conduct the Offering in compliance with the suitability standards
set
forth in the Memorandum and with the requirements of Sections 3(b), 4(2)
and/or
4(6) of the Securities Act and Rule 506 of Regulation D, as and to the extent
applicable to the Offering; accordingly, at all times through the date of
the
final sale of a Unit, the Placement Agent will have:
(i)
not
made
any untrue statement of a material fact and not omitted to state a material
fact
required to be stated or necessary to make any statement made not misleading,
to
the extent any representations are made by the Placement Agent concerning
the
Offering or matters set forth in the Memorandum and Company Data other than
those set forth in the Memorandum and Company Data;
(ii)
not
offered, offered for sale, or sold the Units by means of: (A) any advertisement,
article, notice, or other communication mentioning the Units published in
any
newspaper, magazine or similar medium or broadcast over television or radio;
(B)
any seminar or meeting, the attendees of which have been invited by any general
solicitation or general advertising; or (C) any letter, circular, notice,
or
other written communication, unless the communication is accompanied or preceded
by the Memorandum;
(iii)
prior
to
the sale of any of the Units, reasonably believed that each subscriber and
his
or her purchaser representative, if any, met the suitability and other investor
standards set forth in the Memorandum and the Blue Sky Letters, and the
Placement Agent will have prepared and maintained, for your benefit and the
benefit of the Company, file memoranda and other appropriate records
substantiating the foregoing;
(iv)
only
used
sales materials other than the Memorandum and Company Data which have been
approved for use in the Offering by the Company, and refrained from providing
any such materials to any offeree unless such materials were accompanied
or
preceded by the Memorandum;
(v)
provided
each offeree with a copy of the Memorandum;
(vi)
promptly
distributed any amendment or supplement to the Memorandum provided to the
Placement Agent by the Company under this Agreement to persons who had
previously received a copy of the Memorandum from the Placement Agent and
who
the Placement Agent believed continued to be interested in the Units and
have
included such amendment or supplement in all deliveries of the Memorandum
made
after receipt of any such amendment or supplement; and
(vii)
not
made
any representations on behalf of the Company other than those contained in
the
Memorandum and the Company Data, nor shall the Placement Agent have acted
as an
agent of the Company or for the Company in any other capacity, except as
expressly set forth herein.
4.
Compensation
and Expenses.
(a)
The
Company agrees to pay to the Placement Agent a placement fee of ten percent
(10%) of the aggregate gross offering proceeds of all of the Units sold.
The
Placement Agent may instruct the Company to pay a portion of any placement
fee
due directly to Participating Agents. Such placement fee shall be due and
payable at each closing. The Company also agrees to pay to the Placement
Agent,
as warrant placement agent for transactions involving the exercise of any
Warrants after the first anniversary of the closing of this Offering, which
exercise is solicited by the Placement Agent, a warrant solicitation fee
of five
percent (5%) of the aggregate exercise price received. Notwithstanding the
foregoing, the warrant solicitation fee shall immediately terminate without
further action by any party in the event the Company commences a registered
offering of its securities which is declared effective by the U.S. Securities
and Exchange Commission ("SEC") prior the first anniversary of the closing
of
this Offering.
(b)
In
addition, the Company shall issue and sell, at each closing, to the Placement
Agent or its designees 200 warrants for each Unit sold in the Offering at
a
price of $0.0001 per warrant ("Agent Warrants"). Each Agent Warrant shall
entitle the holder thereof to purchase one share of the Company's common
stock.
The Agent Warrants shall be exercisable at any time alter the first anniversary
of the closing of this Offering at a price equal $6.00 per share, on a
net-issuance or cashless basis. The Company hereby grants the same registration
rights to the Placement Agent with respect to the shares of common stock
underlying the Agent Warrants as are granted to investors with respect to
the
Warrants as set forth in this Agreement. The Agent Warrants will expire five
(5)
years from the date of issuance. Notwithstanding the foregoing, the Agent
Warrants shall immediately terminate and be canceled without further action
by
any party in the event the Company commences a registered offering of its
securities which is declared effective by the SEC prior the first anniversary
of
the closing of this Offering.
(c)
The
Company will pay all costs and expenses related to the Offering and/or the
performance of the Company's obligations under this Agreement, including
preparation of the Memorandum, preparation of related documentation, accounting
fees, legal fees, experts fees, consultants' fees, escrow fees, filing fees
with
the SEC and applicable states, any costs and expenses to qualify the Units
for
sale in any state, and any all costs and expenses for investor or road show
presentations. Notwithstanding the foregoing, the Company shall not be
responsible for any expenses of the Placement Agent or Participating Agents
incurred in connection with the Offering, including, but without limitation,
attorneys' fee, operating expenses, travel expenses and other incidental
expenses incurred by the Placement Agent or the Participating Agents; except
that the Company shall pay the Placement Agent a non-accountable expense
allowance equal to three percent (3%) of the aggregate gross offering proceeds
of all of the Units sold ("Allowance"). Upon execution of this Agreement,
the
Company shall pay the Placement Agent a non-refundable advance of $15,000,
which
such advance being credited against the Allowance earned with respect to
the
first $500,000 of gross offering proceeds raised in the Offering.
5.
Covenants
of the Company.
The
Company covenants and agrees that it will:
(a)
Comply
with all requirements imposed upon it by the Securities Act, as now and
hereafter amended, by the Rules and Regulations from time to time in force,
and
by all State Acts, to permit the continuance of offers and sales of the Units
in
accordance with the provisions of Sections 3(b), 4(2) and/or 4(6) of the
Securities Act and of Rule 506 of Regulation D, as and to the extent applicable
to the Offering, and the Memorandum. During the Offering Period, the Company
will amend or supplement the Memorandum in order to make such Memorandum
comply
with the requirements of the Securities Act, the Rules and Regulations and
the
State Acts.
(b)
Until
the
termination of the Offering Period, furnish to the Placement Agent information
necessary to keep the Memorandum fair, accurate and complete in all material
respects.
(c)
If
at any
time any event occurs as a result of which the Memorandum would include an
untrue statement of a material fact or, in view of the circumstances under
which
they were made, omit to state any material fact necessary to make the statements
therein not misleading, the Company will notify the Placement Agent thereof
(unless the information shall have been received from the Placement Agent)
and
will effect the preparation of an amended or supplemental Memorandum which
will
correct such statement or omission.
(d)
Upon
the
Placement Agent's reasonable request, the Company will prepare an amended
or
supplemental Memorandum and take any other action which may be necessary
of
advisable in connection with the offer and sale of the Units.
(e)
Not
offer, offer to sell, offer for sale or sell any of the Units of the Company
or
other securities, except and to the extent any such offer, offer to sell,
offer
for sale or sale shall not render unavailable the exemptions from registration
and qualification requirements of the Securities Act and the State Acts relied
upon the respect to the offering and sale of the Units contemplated by this
Agreement.
(f)
Provided
their subscriptions are accepted by the Company and approved by the Placement
Agent, issue the Notes and Warrants with respect to the Units to the holders
in
accordance with the description of the procedures as set forth in the Memorandum
and the subscription documents to be delivered with the Memorandum.
(g)
Prepare,
execute and file a Form D (and any and all amendments or supplements thereto)
with the SEC in timely manner and deliver copies thereof to the placement
Agent,
together with copies of all forms (including without limitation, Form Ds)
and
other documents and/or materials filed either before or after the First Closing
Date and the Additional Closing Dates, and comply with Regulation D and the
State Acts and make any fillings required by the SEC and state securities
authorities in a timely manner.
(h)
The
Company will make available for inspection by the Placement Agent or its
authorized representatives, at the Company's principal office during normal
business hours, any information and documents relating to the business and
operations of the Company as the Placement Agent may reasonably request and
as
are available to the Company or obtainable by it without unreasonable effort
or
expense.
(j)
The
Company shall at all times reserve and keep available such number of authorized
shares of its common stock as are sufficient to permit the exercise of the
Warrants and Agent Warrants; all shares of common stock issued upon the exercise
of Warrants and Agent Warrants, upon receipt of full payment therefore, will
be
duly authorized, validly and legally issued, fully paid and nonassessable,
and
such common stock will not have been issued in violation of or subject to
any
preemptive rights provided for by law or by the Company's corporate charter
or
bylaws or be subject to any lien, claim, encumbrance, security interest,
preemptive rights or any other claim of any third party.
(k)
The
Company shall file such registration statements and include such securities
of
the Company in such registration statements filed under the Securities Act
as
specifically provided in the Memorandum and the subscription agreement entered
into by the purchaser of the Units.
6.
Covenants
of Placement Agent.
The
Placement Agent covenants and agrees that it will:
(a)
Comply
with all requirements imposed upon it by the Securities Act, as now and
hereafter amended, by the Rules and Regulations from time to time in force,
and
by all State Acts, to permit the continuance of offers and sales of the Units
in
accordance with Sections 3(b), 4(2) and/or 4(6) of the Securities Act and
of
Rule 506 of Regulation D, as and to the extent applicable to the Offering,
and
the Memorandum.
(b)
Comply
with all applicable rules of the NASD and any other laws, rules and regulations
applicable to broker-dealers.
(c)
Not
offer, offer to sell, offer for sale or sell any of the Units of the Company
or
other securities, except and to the extent any such offer, offer to sell,
offer
for sale or sale shall nor render unavailable the exemptions from registration
and qualification requirements of the Securities Act and the State Acts relied
upon with respect to the offering and sale of the Units contemplated by this
Agreement.
7.
Conditions
of Closing.
The
purchase of, and payment for, the Units on the First Closing Date and any
Additional Closing Dates shall be subject to the continuing accuracy of the
representations and warranties of the Company and the Placement Agent as
of the
date hereof and as of the First Closing and any Additional Closings, to the
performance by the Company and Placement Agent of their respective obligations
hereunder, and to the following conditions:
(a)
The
Placement Agent's obligations as provided herein shall be subject to the
accuracy of the representations, warranties and covenants of the Company
herein
contained as of the date hereof and as of the Closing Date and any Additional
Closing Dates, and to the performance by the Company of its obligations
hereunder to be performed.
(b)
At
the
First Closing and the Additional Closing, if any, the Company
shall:
(1)
Accept
subscriptions of qualifying potential purchasers that the Company reasonably
believes to be qualified investors under Regulation D and the State Acts,
in
accordance with the Memorandum.
(2)
Issue
and
deliver the Notes and Warrants with respect to the Units to subscribers as
described in the Memorandum.
(c)
At
the
First Closing and the Additional Closing, if any, the Placement Agent
shall:
(1)
Deliver
to the Company all subscription agreements that the Company agrees are
acceptable.
(2)
Receive
from the Company or give assignment instructions for all compensation, including
Agent Warrants, payable to the Placement Agent.
8.
Indemnification.
(a)
The
Placement Agent and each of the Participating Agents, severally and not jointly,
agree to indemnify and hold the Company and the directors, officers, employees,
agents, attorneys, shareholders and control persons (as defined under federal
and state securities laws) of the Company, and the respective heirs, personal
representatives and assigns of each of the foregoing (collectively, the "Company
Indemnified Persons") harmless from and against any loss, liability, claim,
damage and expense (including, but not limited to, expenses reasonably incurred
in investigating, preparing or defending against any litigation, commenced
or
threatened, or any claim whatsoever based upon) to which the Company Indemnified
Persons may become subject, under the Securities Act or otherwise, insofar
as
such losses, claims, damages, liabilities, costs and expenses (including
reasonable attorneys' and experts' fees) arise solely out of (i) any breach
of
any representation, warranty, agreement or covenant under this Agreement
by
Placement Agent or under the Dealer Agreement by Participating Agents, (ii)
any
untrue statement or alleged untrue statement of any material fact contained
in
the Memorandum, or any amendment or supplement thereto, or arise out of or
are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not
misleading; in each case to the extent, but only to the extent, that such
untrue
statement or alleged untrue statement or omission or alleged omission was
made
in the Memorandum or such supplement or such amendment in reliance upon and
in
conformity with information furnished to the Company by the Placement Agent,
(iii) any statement made, either orally or in a writing other than the
Memorandum or the Company Data, by the Placement Agent or the Participating
Agents containing an untrue statement or alleged untrue statement of any
material fact or the omission or alleged omission to state a material fact
required to be stated or necessary to make the statements not misleading,
unless
such statements or omissions are made in reliance upon or in conformity with
statements made or information provided by the Company and/or the actions
of the
Company, and/or (iv) any amount paid in settlement of any litigation, commenced
or threatened, or of any claim based upon any of the matters under (i) through
(iii) (including, but not limited to, expenses reasonably incurred in
investigating, preparing or defending against any such litigation or claim)
if
such settlement is affected with the written consent of the Placement Agent
and/or the effected Participating Agents.
If
for
any reason, the foregoing indemnification is unavailable to any Company
Indemnified Persons, then the Placement Agent or Participating Agents shall
contribute to the amount paid or payable by any such Company Indemnified
Person
as a result of such loss, claim, damage or liability in such proportion as
is
appropriate to reflect the relative fault of the Placement Agent or
Participating Agents and any Company Indemnified Person.
Promptly
after a Company Indemnified Person receives notice of the commencement of
any
action, claim, proceeding or investigation ("Action"), such Company Indemnified
Person, if a claim in respect thereof is to be made against the Placement
Agent
or Participating Agents under this Section 8(a), will notify the Placement
Agent
or Participating Agents of the commencement thereof. The omission to so notify
the Placement Agent or Participating Agents will relieve the Placement Agent
and
Participating Agents from any liability which they may have to any Company
Indemnified Person under this Section 8(a) if the Placement Agent or
Participating Agents have been prejudiced in asserting, or shall have lost
the
right to assert, a legal defense by reason of such omission. The Placement
Agent
or Participating Agents will be entitled to participate in, and, to the extent
that they may wish, to assume the defense thereof subject to the provisions
herein stated, with counsel reasonably satisfactory to such Company Indemnified
Person. The Company Indemnified Person will have the right to employ separate
counsel in any such Action and to participate in the defense thereof but
the
fees and expenses of such counsel will be at the expense of the Company
Indemnified Person if the Placement Agent or Participating Agents have assumed
the defense of the Action with counsel reasonably satisfactory to the Company
Indemnified Person. No settlement of any Action against a Company Indemnified
Person for which indemnification from the Placement Agent or Participating
Agents is sought will be made without the consent of the Placement Agent
or
Participating Agents.
(b)
The
Company agrees to indemnify and hold the Placement Agent and Participating
Agents, and the directors, officers, employees, agents, attorneys, shareholders
and control persons (as defined under federal and state securities laws)
of the
Placement Agent and Participating Agents, and the respective heirs, personal
representatives and assigns of each of the foregoing (collectively, the "Agent
Indemnified Persons") harmless from and against any loss, liability, claim,
damage and expense (including, but not limited to, expenses reasonably incurred
in investigating, preparing or defending against any litigation, commenced
or
threatened, or any claim whatsoever based upon) to which the Agent Indemnified
Persons may become subject, under the Securities Act or otherwise, insofar
as
such losses, claims, damages, liabilities, costs and expenses (including
reasonable attorneys' and experts' fees) arise out of or relate to: (i) any
breach of any representation, warranty, agreement or covenant under this
Agreement by the Company, (ii) any untrue statement or alleged untrue statement
of any material fact contained in the Memorandum, or any amendment or supplement
thereto, or the Company Data, or arise out of or are based upon the omission
or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, (iii) any statement
made, either orally or in a writing other than the Memorandum or the Company
Data, by the Company containing an untrue statement or alleged untrue statement
of any material fact or the omission or alleged omission to state a material
fact required to be stated or necessary to make the statements not misleading,
and/or (iv) any amount paid in settlement of any litigation, commenced or
threatened, or of any claim based upon any of the matters under (i) through
(iii) (including, but not limited to, expenses reasonably incurred in
investigating, preparing or defending against any such litigation or claim)
if
such settlement is affected with the written consent of the Company; provided,
however, that the Company shall not be liable to any Agent Indemnified Persons
to the extent that any such losses, claims, damages, liabilities, costs or
expenses, or any actions in respect thereof, arises out of or is based upon
an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Memorandum or such amendment or such supplement in reliance upon
and
in conformity with information furnished to the Company by or on behalf of
the
Placement Agent.
If
for
any reason, the foregoing indemnification is unavailable to any Agent
Indemnified Persons, then the Company shall contribute to the amount paid
or
payable by any such Agent Indemnified Persons as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect the relative
fault of the Company and any Agent Indemnified Person.
Promptly
after an Agent Indemnified Person receives notice of the commencement of
any
action, claim, proceeding or investigation ("Action"), such Agent Indemnified
Person, if a claim in respect thereof is to be made against the Company under
this Section 8(b), will notify the Company of the commencement thereof. The
omission to so notify the Company will relieve the Company from any liability
which it may have to any Agent Indemnified Person under this Section 8(b)
if the
Company has been prejudiced in asserting, or shall have lost the right to
assert, a legal defense by reason of such omission. The Company will be entitled
to participate in, and, to the extent that they may wish, to assume the defense
thereof subject to the provisions herein stated, with counsel reasonably
satisfactory to such Agent Indemnified Person. The Agent Indemnified Person
will
have the right to employ separate counsel in any such Action and to participate
in the defense thereof but the fees and expenses of such counsel will be
at the
expense of the Agent Indemnified Person if the Company has assumed the defense
of the Action with counsel reasonably satisfactory to the Agent Indemnified
Person. No settlement of any Action against an Agent Indemnified Person for
which indemnification from the Company is sought will be made without the
consent of the Company.
9.
Representations,
Indemnities and Agreements to Survive Sale and Payment.
The
respective representations, indemnities, warranties, covenants and other
agreements of the Company and the Placement Agent set forth in or made pursuant
to this Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Placement Agent, the Company, or
any
Agent Indemnified Person or Company Indemnified Person, and shall survive
closing, delivery of, and payment for the Units.
10.
Termination
of Agreement.
Notwithstanding any of the terms and provisions thereof, this Agreement may
be
terminated by the Placement Agent based on a material breach of this Agreement
by the Company. The Placement Agent shall give fifteen (15) days' prior written
notice to the Company of such material breach, and the Company shall have
thirty
(30) days to cure such material breach before the Placement Agent may terminate
the Agreement. In the event the Placement Agent reasonably determines that
the
Units are not marketable, notwithstanding its best efforts to sell the Units,
the Placement Agent may terminate this Agreement with thirty (30) days' prior
written notice to the Company.
In
the
event of any termination this Agreement or the expiration of the Offering
Period, the Placement Agent shall be entitled to: (i) any fees and compensation
to which it was entitled as of the date of termination or expiration, and
(ii)
the fees and compensation as set forth in Section 4 for any securities sold
by
Company during the one (1) year period following such expiration or termination
to any investor introduced by Placement Agent and/or any Participating
Agent.
Additionally,
Sections 4, 8, 9, 10, 11, 12 and 14 shall survive any termination or survive
closing, delivery of, and payment for the Units.
11.
Notices.
All
notices, requests, demands or other communications with respect to this
Agreement shall be in writing and shall be personally delivered or mailed,
postage prepaid, certified mail, or delivered by facsimile or a nationally
recognized express courier service, charges prepaid, to the Company or Placement
Agent at the addresses set forth in this Agreement (or such other addresses
as
the parties may specify from time to time in accordance with this section).
Any
such notice shall, when sent in accordance with the preceding sentence, be
deemed to have been given and received, on the earliest of: (i) on the day
personally delivered including by facsimile, (ii) on the third day following
the
date mailed, or (iii) twenty-four hours after shipment by such courier
service.
12.
Successors.
This
Agreement shall be binding upon and inure solely to the benefit of the Placement
Agent and the Company and, to the extent provided in Section 8, an Agent
Indemnified Person or Company Indemnified Person, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser
of
any of the Units shall be construed a successor, representative or assignee
by
reason of such purchase.
13.
Right
of Exclusive Representation.
During
the one year period following the date hereof, the Company grants Placement
Agent the right to act as the Company's exclusive placement agent and/or
managing underwriter for any private placement or public offering of securities
by the Company. This provision will not apply to any sale of securities to
employees.
14.
Miscellaneous
Provisions.
(a)
Construction.
This
agreement shall be governed by, subject to and construed in accordance with
the
laws of the state of Colorado without regard to such state's conflicts of
law
principles.
(b)
Severability.
If any
portion of this Agreement shall be held invalid or inoperative, then, so
far as
is reasonable and possible (i) the remainder of this Agreement shall be
considered valid and operative, and (ii) effect shall be given to the intent
manifested by the portion held invalid or inoperative.
(c)
Modification
or Amendment.
This
Agreement may not be modified or amended except by written agreement executed
by
the parties hereto.
(d)
Number
and Gender of Words.
Whenever
the context so requires, the masculine shall include the feminine and neuter,
and the singular shall include the plural, and conversely,
(e)
Other
Instruments; Counterparts.
The
parties hereto covenant and agree that they will execute such other and further
instruments and documents are or may become necessary or convenient to effect
and carry out the terms of this Agreement. This Agreement may be executed
by
facsimile signatures and in multiple counterparts, each of which shall be
deemed
an original. It shall not be necessary that each party executes each
counterpart, or that any one counterpart be executed by more than one party
so
long as each party executes at least one counterpart.
(f)
No
Partnership.
The
Placement Agent is not a principal of or a partner with, or does not control
in
any way, the Company or its employees or agents.
(g)
Announcements.
Before
the Company releases any information referring to the Placement Agent's role
under this Offering or uses Placement Agent's name in a manner which may
result
in public dissemination thereof, the Company shall furnish drafts of all
documents or prepared oral statements to Placement Agent for comments, and
shall
not release any information relating thereto without the prior written consent
of the Placement Agent. Nothing herein shall prevent the Company from releasing
any information to the extent that such release is required by law, rule
or
regulation. The Company agrees that, following the completion of the Offering,
the Placement Agent shall have the right to place "tomb stone" advertisements
in
financial and other newspapers and journals, at the Company's cost, describing
its services to the Company hereunder, provided that Placement Agent will
submit
a copy of any such advertisements to the Company for its prior approval,
which
approval shall not be unreasonably withheld.
(h)
Assignment.
The
Placement Agent may assign this Agreement to another company or firm under
its
common control. Otherwise, this Agreement shall not be assignable by any
party
to this Agreement without the express prior written consent of the other
party
to the Agreement, and in the event of an attempted assignment by one party
to
this Agreement without such consent, such attempted assignment shall be void
and
without effect.
(i)
Parties.
This
Agreement shall be binding upon and inure solely to the benefit of the parties
hereto and any permitted assigns, and no other person shall have or be construed
to have any legal or equitable right, remedy or claim under or in respect
of or
by virtue of this Agreement or any provision herein contained, except that
the
Participating Dealers shall be a third party beneficiary of the provisions
of
Section 8(b) hereof.
(j)
Entire
Agreement.
This
Agreement contains the entire understanding between the parties and supersedes
any prior understandings or written or oral agreements between them respecting
the subject matter hereof.
(k)
Consent
to Jurisdiction and Waiver of Trial by Jury.
Each
party hereto: (i) consents to personal jurisdiction and service and venue
in any
court in which a claim subject to this agreement is brought against the other
party hereto or any other Indemnified Party; and (ii) waives all right to
trial
by jury in any action, proceeding or counterclaim (whether based upon contract,
tort or otherwise) related to or arising out of the engagement of Placement
Agent pursuant to, or the performance by Placement Agent of the services
contemplated by, this Agreement.
(1)
Attorneys'
Fees.
In the
event any party hereto shall commence legal proceedings against the other
to
enforce the terms hereof, or to declare rights hereunder, as the result of
a
breach of any covenant or condition of this Agreement, the prevailing party
in
any such proceeding shall be entitled to recover from the losing party its
costs
of suit, including reasonable attorneys' fees, as may be fixed by the
court.
[Remainder
of this page intentionally left blank.]
If
the
foregoing is in accordance with your understanding, please sign and return
to us
a counterpart hereof, whereupon this Agreement and the Placement Agent's
acceptance thereof shall constitute a binding agreement between you, as the
Placement Agent, and the Company.
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AeroGrow
International, Inc.
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By:
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/s/ Michael
Bissonnette, President
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ACCEPTED AND AGREED TO:
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/s/ Timothy
J. Keating, President
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Date: May 27, 2005
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PLACEMENT
AGREEMENT
February
6, 2006
Keating
Securities, LLC
5251
DTC
Parkway, Suite 1090
Greenwood
Village, CO 80111
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Re:
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Private
placement offering of up
to
2,400,000 u
nits
(“Units”), with each Unit consisting
of
one share of common stock, $0.001 par value (“Common Stock”) and one
common
stock
purchase warrant (“Warrant”).
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Dear
Sirs:
Aero
Grow
International, Inc. (“Company”) proposes to offer, offer for sale and sell up to
2,400,000 Units at an offering price of $5.00 per Unit, to accredited investors.
The offering of the Units (“Offering”) is being made on a best efforts,
$5,000,000 minimum (“Minimum Amount”) $12,000,000 maximum (“Maximum Amount”)
basis. Each Unit shall consist of one share of Common Stock and one Warrant.
Each Warrant is exercisable for one share of Common Stock at an exercise price
of $6.25 per share. Each Warrant will be non-redeemable and will be exercisable
for five years from the closing of this Offering. There will be only one closing
of this Offering.
The
Company agrees to file, on one occasion, a registration statement under the
Securities Act of 1933, as amended (“Securities Act”) to register the shares of
Common Stock included in each Unit and the shares of Common underlying the
Warrants included in each Unit.
The
Company, the Units, the Common Stock, the Warrants and the registration rights
are more fully described in a private placement memorandum dated February 6,
2006 and any supplements or amendments thereto (the "Memorandum"). The Company
desires to employ Keating Securities, LLC (the "Placement Agent") as its
exclusive placement agent to offer, offer for sale and sell the Units subject
to
all of the terms and conditions of this Agreement and subject to the terms
and
conditions contained in the Memorandum.
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1.
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Description
of Offering and Appointment of
Agent.
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(a)
Appointment.
On
the
basis of the representations, warranties and covenants herein contained, but
subject to the terms and conditions herein set forth, the Placement Agent is
hereby appointed the exclusive agent of the Company during the Offering Period
(as defined herein) for the purpose of finding subscribers for sale of up to
$12,000,000 of Units on a “best efforts” basis
.
The
Placement Agent may, in its sole discretion, appoint participating agents
(including foreign banks, dealers and institutions) to offer and sell the Units
as sub-agents of the Placement Agent (the "Participating Agents") pursuant
a
certain dealer agreement between the Placement Agent and each Participating
Agent (“Dealer Agreement”). A minimum purchase of 5,000 Units per investor is
required. No fractional Units will be sold in the Offering . The Placement
Agent
acknowledges that the Company may limit its acceptance of subscriptions in
any
manner it deems prudent in order to provide for the timely use of subscriber
funds and may reject any subscription for any reason, and the Placement Agent
agrees that any such rejection of a subscription obtained by the Placement
Agent
or by the Participating Agents shall be deemed not to be a sale made by the
Placement Agent or by the Participating Agents. The Placement Agent further
acknowledges that (i) all wire transfers of subscription funds will be sent
to
an escrow account (“Escrow Account”) maintained by Steele Street State Bank,
Denver, Colorado (“Escrow Agent”) under the name “Keating - AeroGrow Escrow
Account,” (ii) all subscribers' checks shall be made payable to and deposited
into the Escrow Account, (iii) all subscribers' check will be transmitted
directly to the Escrow Agent by noon of the next business day after receipt
by
the Placement Agent or the Participating Agents, (iv) all executed subscription
documents shall be promptly sent to the Placement Agent, (v) no funds shall
be
disbursed from the Escrow Account until such time as subscriptions in the
Minimum Amount have been accepted by the Company and approved by the Placement
Agent, and (vi) the Escrow Agent shall disburse funds from the Escrow Account
only upon the written direction signed by the Company and the Placement Agent.
(b)
Offering
Period.
The
"Offering Period" shall mean that period during which the Units are offered
for
sale, commencing on the date of the Memorandum and continuing until March 1,
2006, or such later date mutually agreed to by the Company and Placement Agent
but not later than March 31, 2006 (the "Termination Date"); provided, however,
that the Offering Period shall in all events terminate upon the sale of all
of
the Units.
(c)
Acceptance.
The
Placement Agent hereby accepts such agency and agrees on the terms an conditions
herein set forth to use the Placement Agent's best efforts during the Offering
Period to find subscribers for the Units.
(d)
Private
Placement Offering.
The
Offering will not be registered under federal securities laws or the securities
laws of any state. The Offering will be
through
a
private offering to "accredited investors" (as such term is defined in Rule
501
of Regulation D) ("Accredited Investors") pursuant to and in accordance with
exemptions
from registration under federal securities laws and state securities acts (the
"State Acts"). With respect to federal securities laws, the Company will rely
on
one or more exemptions from registration for sales to Accredited Investors,
including, without limitation, exemptions from registration provided by Sections
3(b), 4(2) and/or 4(6) of the Securities Act, Regulation S, and Rule 506 of
Regulation D, promulgated as part of the rules and regulations under the
Securities Act (the "Rules and Regulations"). With respect to the State Acts,
the Company will not be subject to them pursuant to preemption based on Section
18 of the Securities Act or will rely upon limited offering exemptions of
certain states approved by the Company. The Company shall use its best efforts
to qualify or register the Units for sale, or exempt the Units from
qualification or registration, under the State Acts as requested by the
Placement Agent, and the Company shall continue such qualifications in effect
for so long as may be necessary to complete the Offering. The Company or its
counsel shall provide Placement Agent with all applications, forms and documents
filed in each jurisdiction where the Units are to be qualified or registered
or
qualified or offered in an exempt transaction under the State Acts. The Offering
of the Units shall be at the offering price and upon the terms and conditions
set forth in the Memorandum and the subscription agreement which is included
in
the subscription documents to be delivered with the Memorandum, and on the
basis
of the representations and warranties therein contained, and subject to the
terms and conditions herein set forth.
(e)
Closing.
All
cash
proceeds from the subscriptions (the "Funds") will be deposited into the Escrow
Account maintained by the Escrow Agent. After the Company's acceptance of
subscriptions in such amount as mutually determined by the Company and the
Placement Agent, but not less than the Minimum Amount, and subject to the
Placement Agent’s approval of such subscriptions, on a date to be determined by
the Company and Placement Agent, a closing will take place at the offices of
the
Company's legal counsel or another location as determined by the Company, and
the shares of Common Stock and Warrants included in the Units evidencing the
subscriptions in the forms shown in the Memorandum will be duly executed and
issued by the Company in accordance with the terms of the Memorandum and
promptly delivered to the investors (the "Closing"), and the shares of Common
Stock when issued shall be fully paid and non-assessable.
(f)
Other
Covenants
.
In
connection with the Offering, the Company and Placement Agent each agree as
follows: (i) the Units will be offered and sold only to Accredited Investors
pursuant to the registration exemption provided by Sections 3(b), 4(2) and/or
4(6) of the Securities Act, Regulation S and Rule 506 of Regulation D, as and
to
the extent applicable to the Offering,
and
will
otherwise comply with the applicable laws and regulations of any jurisdictions
in which the Units are offered or sold, (ii) neither the offer, sale nor
delivery of the Units in conformity with the terms hereof will violate
Section 5 of the Securities Act, as currently in effect, and (iii) neither
the Company nor Placement Agent has taken, nor will either party take any action
which conflicts with the conditions and requirements of, or which would make
unavailable with respect to the sale of the Units, the exemptions from
registration available pursuant to Regulation S, Rule 506 of Regulation D
or Sections 3(b), 4(2) and/or 4(6) of the Securities Act and neither the
Company nor Placement Agent knows of any reason why any such exemption would
be
otherwise unavailable to it.
(g)
Information
to be Supplied.
The
Company will furnish or cause to be furnished to Placement Agent such
information as Placement Agent reasonably believes appropriate to its assignment
or necessary in connection with its assistance in the preparation of, review
of,
or inclusion in, the Memorandum. It is also understood that the Company may
make
available to Placement Agent and the offerees of the Units additional material,
data or other information relating to the Company to the extent such information
can be obtained without unreasonable effort or expense and is not otherwise
confidential or a trade secret of the Company (collectively, as limited the
“Company Data”). The Company recognizes and confirms that (a) in performing
the services contemplated by this Agreement, Placement Agent will use and rely
primarily on the Memorandum and Company Data made available to Placement Agent
and on other information available from generally recognized public sources
without having independently verified the same; (b) the contents of the
Memorandum and the Company Data are the sole responsibility of the Company,
and
Placement Agent does not assume any responsibility for the accuracy or
completeness of the Memorandum or the Company Data, and will not undertake
to
verify independently any of their accuracy or completeness; and
(c) Placement Agent will furnish a copy of the Memorandum, and each
supplement or amendment thereto, to each purchaser of Units, and Placement
Agent
will not employ any written material other than the Memorandum, each supplement
and amendment thereto and the Company Data.
2.
Representations
and Warranties of the Company.
The
Company represents and warrants to, and agrees with, the Placement Agent and
the
Participating Agents (if any) as follows:
(a)
The
Company has been duly incorporated, and validly exists as a corporation in
good
standing under the laws of the state of Nevada.
The
Company has the requisite power and authority to own, lease and operate its
assets and properties and to carry on its business as it is now being or
currently planned by the Company to be conducted. The Company is in possession
of all franchises, grants, authorizations, licenses, permits, easements,
consents, certificates, approvals and orders ("Approvals") necessary to own,
lease and operate the properties it purports to own, operate or lease and to
carry on its business as it is now being conducted, except where the failure
to
have such Approvals could not, individually or in the aggregate, reasonably
be
expected to have a Material Adverse Effect (as hereinafter defined) on the
Company. The Company is not in violation of any of the provisions of its
Articles of Incorporation or its bylaws, as currently in effect (“Charter
Documents"). The Company is duly qualified or licensed to do business as a
foreign company and is in good standing in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company. The minute books or the equivalent of the Company
to the extent of their existence contain true and accurate records of meetings
and true, complete and accurate records of consents in lieu of meetings of
its
directors (and any committees thereof), similar governing bodies, and
stockholders ("Corporate Records"), since the time of the Company's
organization. The Company has no subsidiaries. For purposes of this Agreement,
the term "Material Adverse Effect" when used in connection with an entity means
any change, event, violation, inaccuracy, circumstance or effect, individually
or when aggregated with other changes, events, violations, inaccuracies,
circumstances or effects, that is materially adverse to the business, assets
(including intangible assets), revenues, financial condition or results of
operations of such entity or its subsidiaries, if any, taken as a whole (it
being understood that neither of the following alone or in combination shall
be
deemed, in and of itself, to constitute a Material Adverse Effect: (a) changes
attributable to the public announcement or pendency of the Merger (as defined
herein), the Offering or any related transactions (collectively, the
“Transactions”), (b) changes in general national or regional economic
conditions, or (c) changes affecting the industry generally in which the Company
operates.
(b)
The
Company has complied and will comply with Sections 3(b), 4(2) and/or 4(6) of
the
Securities Act, with all of the provisions of the Rules and Regulations
promulgated under the Securities Act, specifically including the provisions
of
Regulation S, Regulation D and Rule 506 thereunder, applicable to them in
connection with the offering and sale of the Units, and with all States Acts
and
regulations applicable to them in connection with the offering and the sale
of
the Units.
(c)
The
Memorandum, and any amendments or supplements thereto, as of the date hereof,
and at all subsequent times through the Closing, shall in all material respects
conform to all applicable provisions of the Securities Act, the Rules and
Regulations and the State Acts, and shall not contain any untrue statement
of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; provided however,
that this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Placement Agent and any
Participating Agents for use with reference to the Placement Agent and any
Participating Agents in connection with preparation of the
Memorandum.
(d)
The
execution on performance of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly authorized by the Company
and,
at the time of its execution and performance, shall not constitute or result
in
any breach or violation (other than any breach or violation which shall have
been waived or consented to in writing) of any of the terms, provisions or
conditions of, or constitute a default under, any indenture, mortgage, deed
of
trust, note, contract, commitment, instrument or document to which it or any
of
its properties is subject, the Charter Documents or corresponding documents
of
the Company, or any order, arbitration award , or judgment, of any court of
governmental agency or body having jurisdiction over the Company or any of
its
activities or properties; and no consent, approval, authorization or order
of
any court or governmental agency or body is required for the consummation of
the
transactions contemplated hereby.
(e)
The
Units, the shares of Common Stock, the Warrants and the Agent Warrants shall
be
duly authorized and shall be validly issued and binding obligations of the
Company, and shall conform to the description thereof contained in the
Memorandum. The shares of Common Stock included in the Units, and the shares
of
Common Stock underlying the Warrants and the Agent Warrants, when issued, shall
be fully paid and non-assessable.
(f)
Neither
the Company nor, to the Company’s knowledge, any of the Company’s affiliates
have been subject to any order, judgment or decree of any court of competent
jurisdiction temporarily, preliminary or permanently enjoining such person
for
failing to comply with
Rule
503
under Regulation D. During the past five year period, to the Company’s
knowledge, no current or former director, executive officer or 10% or more
stockholder of the Company has been the subject of:
(a)
a
petition under the Federal bankruptcy laws or any other insolvency or moratorium
law or has a receiver, fiscal agent or similar officer been appointed by a
court
for such person, or any partnership in which such person was a general partner
at or within two years before the time of such filing, or any corporation or
business association of which such person was an executive officer at or within
two years before the time of such filing;
(b) a
conviction in a criminal proceeding or a named subject of a pending criminal
proceeding (excluding traffic violations that do not relate to driving while
intoxicated or driving under the influence);
(c)
any
order, judgment or decree, not subsequently reversed, suspended or vacated,
of
any court of competent jurisdiction, permanently or temporarily enjoining any
such person from, or otherwise limiting, the following activities:
(1)
Acting as a futures commission merchant, introducing broker, commodity trading
advisor, commodity pool operator, floor broker, leverage transaction merchant,
any other person regulated by the United States Commodity Futures Trading
Commission or an associated person of any of the foregoing, or as an investment
adviser, underwriter, broker or dealer in securities, or as an affiliated
person, director or employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any conduct
or
practice in connection with such activity;
(2)
Engaging in any type of business practice; or
(3)
Engaging in any activity in connection with the purchase or sale of any security
or commodity or in connection with any violation of Federal, state or other
securities laws or commodities laws;
(d)
any
order, judgment or decree, not subsequently reversed, suspended or vacated,
of
any Federal, state or local authority barring, suspending or otherwise limiting
for more than 60 days the right of any such person to engage in any activity
described in the preceding sub-paragraph, or to be associated with persons
engaged in any such activity;
(e)
a
finding by a court of competent jurisdiction in a civil action or by the U.S.
Securities and Exchange Commission (the "Commission") to have violated any
securities law, regulation or decree and the judgment in such civil action
or
finding by the Commission has not been subsequently reversed, suspended or
vacated; or
(f) a
finding by a court of competent jurisdiction in a civil action or by the
Commodity Futures Trading Commission to have violated any federal commodities
law, and the judgment in such civil action or finding has not been subsequently
reversed, suspended or vacated.
(g)
The
Company represents and warrants that at all times from the respective dates
that
the Memorandum (including, without limitation, any supplement or amendment
thereto) and the Company Data, if any, are furnished or made available by the
Company to Placement Agent or, either directly or through Placement Agent,
to
offerees or any of their representatives, such Memorandum (including, without
limitation, any supplement or amendment thereto) and Company Data will not,
taken separately or in any combination as provided to Placement Agent or any
offeree or its representatives, contain any untrue statement of a material
fact
or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(h)
The
Company will furnish Placement Agent from time to time, such number of copies
of
the Memorandum and Company Data, any exhibits thereto and agreements and
documents referred to therein, as Placement Agent may reasonably
request.
(i)
If
any
event shall occur or condition exist as a result of which it is necessary or
advisable, in the opinion of the Company or Placement Agent, to amend or
supplement the Memorandum in order that the Memorandum will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein not misleading in light of the
circumstances existing at the time it is delivered to prospective purchasers,
the Company will forthwith prepare and furnish to Placement Agent such number
of
copies as Placement Agent may reasonably request of an amendment or supplement
to the Memorandum (in form and substance satisfactory to Placement Agent and
its
counsel) that will ensure that the Memorandum does not contain any misstatements
or omissions and is not in any respect misleading and provide the same to
offerees.
(j)
The
Company will advise Placement Agent promptly of (A) the occurrence of any
event or the existence of any condition known to the Company referred to in
Section 2(i) hereof; (B) the receipt by the Company of any communication,
stop order or any order from the SEC, any state securities commissioner or
any
other domestic or foreign securities or financial regulatory authority or
self-regulatory organization concerning the offering of the Units; and (C)
the
commencement of any lawsuit or proceeding to which the Company is a party
relating to the Units or the Offering. The Company shall make every reasonable
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof as promptly as possible.
(k)
The
Company will (A) make available to each offeree of the Units the
Memorandum; and (B) provide each offeree the opportunity to ask questions
of, and receive answers from, the officers and employees of the Company
concerning the terms and conditions of the Offering and to obtain any other
additional information about the Company and the Units to the extent the
officers and employees of the Company possess the same or can acquire it without
unreasonable effort or expense and it is not otherwise confidential or trade
secret information. The Company may require appropriate confidentiality and
non-disclosure agreements as it is advised by counsel prior to the disclosure
of
any information not otherwise contained in the Memorandum.
(l)
The
Company is not in default in the performance or observance of any material
obligation (A) under its Charter Documents, or any indenture, mortgage,
contract, purchase order or other agreement or instrument to which the Company
is a party or by which it or any of its property is bound or affected; or
(B) with respect to any order, writ injunction or decree of any court of
any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, and there exists
no condition, event or act which constitutes, nor which after notice, the lapse
of time or both, could constitute a default under any of the foregoing, which
in
either case would have a material adverse effect on the current business of
the
Company.
(m)
The
Company has full right, power and authority to execute and deliver this
Agreement, and any document, certificate or instrument required hereunder or
to
be executed or delivered at any Closing in connection with the Offering
(collectively, the “Documents”), and to perform all of its obligations hereunder
and thereunder or contemplated hereby or thereby. The Documents have been,
or
will be, duly executed and delivered by the Company and the execution and
delivery by the Company of the Documents and the performance of all of its
obligations have been duly authorized by all requisite corporate action by
the
Company, and each Document (assuming the due authorization and execution of
the
other parties thereto) executed and delivered and obligation performed
constitutes, or will constitute, the legal, valid and binding obligation of
the
Company enforceable in accordance with its respective terms,
subject
to applicable bankruptcy, insolvency and other laws affecting the enforceability
of creditors' rights generally
.
(n)
The
(A) authorization, execution, delivery and performance of the Documents;
and (B) authorization, issuance, sale and delivery of the Units, the shares
of Common Stock, the Warrants and the Agent Warrants will not (1) violate
any provision of law or statute or any order of any court or other governmental
agency applicable to the Company; or (2) conflict with or result in any
breach of any of the terms, conditions or provisions of, or constitute (with
due
notice or lapse of time or both) a default under, or result in the creation
of
any material lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company under its charter or by-laws, or any
indenture, mortgage, lease agreement or other material agreement or instrument
to which the Company is a party or by which it or any of its property is bound
or affected except for violations, conflicts breaches and defaults that would
not, individually or in the aggregate materially and adversely affect the
Company, Placement Agent or any investor in this Offering.
(o)
The
Company has all requisite corporate power and authority to issue, sell and
deliver the Units, the shares of Common Stock, the Warrants and the Agent
Warrants and such issuances, sales and deliveries have been duly authorized
by
all requisite corporate action of the Company and when so issued, sold and
delivered the Units, the shares of Common Stock, the Warrants and the
Agent Warrants will be duly and validly issued and outstanding, valid and
binding obligations of the Company, and the shares of Common Stock included
in
the Units and the shares of Common Stock underlying the Warrants and the Agent
Warrants, when issued, shall be fully paid and non-assessable, with no personal
liability attaching to the ownership thereof and will be free and clear of
all
liens, charges, claims, encumbrances, restrictions or preemptive or any other
similar rights imposed by or through the Company, except as waived
prior
to the
Closing or as disclosed herein and as shall be disclosed in the Memorandum,
and
the Company shall have paid all taxes, if any, in respect of the issuance
thereof. Assuming that the investors met such suitability standards as are
specified by the Company and the representations and warranties of Placement
Agent are accurate as to the method of offering, the offer and sale of the
Units, the shares of Common Stock, the Warrants and the Agent Warrants
(collectively, the “Securities”)are exempt from the registration requirements of
the Securities Act and the Rules and Regulations and the State Acts and the
Securities will be issued in compliance with all applicable Federal and state
securities laws.
(p)
No
permit, consent, approval, authorization, order of, or filing with, any court
or
governmental authority is required in connection with the execution and delivery
by the Company of this Agreement or to consummate the Offering, except that
the
offer and sale of the Units in certain jurisdictions may be subject to the
provisions of the securities or “blue sky” laws of such jurisdictions and the
federal securities laws.
(q)
There
is
no action suit proceeding before or by any United States court or governmental
agency or body, now pending or threatened, against or affecting the Company,
or
any of its properties, which would reasonably be anticipated to result in any
Material Adverse Effect.
(r)
The
Company has (A) duly and timely filed all tax returns required to be filed
by the Company under applicable law that include or relate to the Company,
its
income, assets, payroll, operations or business, which tax returns are true,
correct and complete in all material respects; (B) duly and timely paid, in
full, all taxes which are currently due and payable and for which the Company
is
liable; or (C) adequately reserved for taxes that have not been paid or are
in
dispute.
(s)
The
Company is not in default under any agreement, lease, license contract or
commitment, whether oral or written including, without limitation, agreements
with employees and consultants (“Company Agreements”) to which the Company is a
party or by which any of its assets are bound, and there is no event known
to
the Company that, with notice, or lapse of time, or both, would constitute
a
default by any party to any Company Agreement or give any party the right to
terminate or modify any of the same and the Company has not received notice
that
any party to any Company Agreement intends to cancel or terminate any Company
Agreement or to exercise or not to exercise any renewal or extension options
under any Company Agreement, except as to any events described in this
subparagraph that would not have a Material Adverse Effect.
(t)
The
Company holds, and is in compliance with, all permits, licenses, registrations
and authorizations required by it in connection with the conduct of the business
of the Company as currently conducted under all Federal, state and local laws,
rules and regulations (the “Permits”), except where the failure to be in
compliance has not had, and is not reasonably expected to have, a Material
Adverse Effect.
(u)
The
Company’s financial statements, which may be unaudited, that are included in the
Memorandum, are true and correct and fairly present, in accordance with U.S.
generally accepted accounting principles (“U.S. GAAP”), consistently applied,
the financial condition of the Company as of the dates specified (“Financial
Statements”). The audited Financial Statements of the Company included in the
Memorandum have been audited in accordance with the standards of the U.S. Public
Company Accounting Oversight Board (“PCAOB”) by an independent certifying
accountant duly registered with the PCAOB. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that
(i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared
with
the existing assets at reasonable intervals and appropriate action is taken
with
respect to any differences.
Except
as
set forth in Schedule 2(u) hereto, the Company has no liabilities individually
in excess of $25,000 and in the aggregate in excess of $50,000 (absolute,
accrued, contingent or otherwise) of a nature required to be disclosed on a
balance sheet or in the related notes to the financial statements prepared
in
accordance with U.S. GAAP which are, individually or in the aggregate, material
to the business, results of operations or financial condition of the Company,
except: (i) liabilities provided for in or otherwise disclosed in the balance
sheets of the Company as of September 30, 2005 prepared in accordance with
U.S.
GAAP, (ii) such liabilities arising in the ordinary course of the Company’s
business since September 30, 2005 and (iii) liabilities disclosed in the
Memorandum, none of which would have a Material Adverse Effect on the
Company.
(v)
Since
September 30, 2005, the Company has conducted its business in the ordinary
course and has not suffered any Material Adverse Effect. The Company has in
place
insurance
policies covering the assets, business, products, equipment, properties,
operations, employees, officers, directors, managers and managing members
(collectively, the "Insurance Policies") of the Company adequate for the
Company’s business as presently conducted.
(w)
The
capitalization of the Company has been correctly and completely described in
the
Memorandum and, except as shall be disclosed therein, no person has any right
of
first refusal, pre-emptive right, right of participation, or any similar right
to participate in the transactions contemplated by the Documents. There are
no
outstanding options, warrants, rights to subscribe to, calls or commitments
of
any character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire, any shares of capital stock of the Company, or
contracts, commitments, understandings or arrangements by which the Company
is
or may become bound to issue shares of capital stock, except as shall be
reflected in the Memorandum. All of the outstanding shares of capital stock
of
the Company are validly issued, fully paid and non-assessable, have been issued
in compliance with all federal and state securities laws, and none of such
outstanding shares of capital stock was issued in violation of any pre-emptive
rights or similar rights to subscribe for or purchase securities.
(x)
The
Company has rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
other similar rights that are necessary or material for use in connection with
its business (collectively, the “Intellectual Property Rights”), except to the
extent that the failure to have such Intellectual Property Rights, individually
or in the aggregate, would not have or reasonably be expected to result in
a
Material Adverse Effect. No claims have been made or threatened by any third
party to the effect that Intellectual Property Rights used by the Company
violate or infringe upon the rights of such claimant. To the actual knowledge
of
the Company, all of the Intellectual Property Rights are enforceable and there
is no existing infringement by another person of any of the Intellectual
Property Rights.
(y)
At
the
Closing, the Company will deliver, or cause to be delivered, to Placement Agent,
in each case in form and substance satisfactory to Placement Agent and its
counsel: (A) a certificate of the Company signed by the Chief Executive
Officer and the Chief Financial Officer thereof certifying (1) that the
representations and warranties of the Company contained in this Agreement are
true and accurate in all material respects as of the Closing; and, (2)
that the representations and warranties of the Company contained in each
subscription agreement entered into with a prospective purchaser of the Units
are true and correct in all material respects as of the date of such
certificate, except to the extent any such representation or warranty was
expressly made as of any other date, in which case such representation and
warranty was true and correct in all material respects as of such other date;
and at the Closing, and (B) an opinion of the Company’s counsel, as to matters
reasonably requested by the Placement Agent.
In
rendering the opinions required herein, counsel and special securities counsel
to the Company may, as to factual matters, rely upon certificates, statements,
letters, representations and affidavits of officers of the Company, its
officers, any other records of the Company, certificates of public officials,
and letters of independent certified public accountants. With respect to the
opinions required herein, “known to such counsel”, “to the best knowledge of
such counsel” or any like phrase or reference shall mean to the best of
knowledge of such counsel after due inquiry and investigation; “due inquiry and
investigation” shall include only (i) discussions, inquiries and conferences
with officials and agents of the Company occurring in connection with such
counsel's representation of the Company, (ii) review of certain corporate
records documents and proceedings of the Company as provided to such counsel
by
the Company and (iii) review of files maintained by such counsel relating to
the
Company; “due inquiry and investigation” shall not mean or imply any independent
verification of any factual matter of which such counsel becomes aware as a
result of the foregoing discussions, inquiries and reviews.
(z)
The
Company further agrees that it will not consummate the Offering unless it
delivers or causes to be delivered the items described in Section 2(m) to
Placement Agent at the Closing. The consummation of the Offering and the release
of the investor funds from the Escrow Account shall be further subject to any
other conditions set forth in the Memorandum or the subscription agreement
entered into by each purchaser of Units.
(aa)
The
Company will be responsible for and comply with all applicable notification
and
fee requirements to qualify the offering and sale under the state securities
or
“blue sky” laws of such jurisdiction in which any sales pursuant to the offering
may be transacted and as may otherwise be required or as requested by Placement
Agent provided that, in connection therewith, the Company shall not be required
to qualify as a foreign corporation.
(bb)
Except
as
set forth in this Agreement or as disclosed on Schedule 2(bb), neither the
Company nor, to the Company’s knowledge, any of its officers, directors or
stockholders has incurred, nor will they incur, directly or indirectly, any
liability for brokerage, finders' fees, agent’s commissions or any similar
charges in connection with this Agreement or the Transactions. Except as set
forth in this Agreement or the Transactions, no membership interests, ownership
interests, equity securities, convertible securities, warrants, options, or
other derivative securities of the Company will be payable to any third party
by
the Company or any of its officers, directors or stockholders as a result of
the
Transactions.
3.
Representations
and Warranties of the Placement Agent
.
The
Placement Agent represents and warrants to, and agrees with, the Company as
follows:
(a)
The
Placement Agent is a limited liability
duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it was formed, with all requisite power and authority
to
enter into this Agreement and to carry out your obligations hereunder. This
Agreement (i) has been duly authorized, executed and delivered by the Placement
Agent, (ii) constitutes legal, valid and binding obligation of the Placement
Agent, and (iii) subject to applicable bankruptcy, insolvency and other laws
affecting the enforceability of creditors' rights generally, is enforceable
as
to the Placement Agent in accordance with its terms.
(b)
The
execution, delivery and performance of this Agreement by the Placement Agent
and
the consummation by the Placement Agent of the transactions contemplated hereby
and by the Memorandum will not conflict with or result in the Placement Agent’s
breach or violation of any of the terms or provisions of, or constitute a
default in any material respect under, (i) any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which the
Placement Agent is a party or to which the Placement Agent or its property
is
subject, (ii) the Placement Agent’s charter or its operating agreement or (iii)
any statute, judgment, decree, order, rule or regulation applicable to the
Placement Agent of any court or governmental agency or body having jurisdiction
over the Placement Agent.
(c)
The
Placement Agent is, and at all times through the date of the final sale of
a
Unit shall remain, duly registered pursuant to the provisions of the Securities
Exchange Act of 1934, as amended (“Exchange Act”) as a broker-dealer and duly
registered as a broker-dealer in those states in which the Placement Agent
is
required to be so registered in order to carry out the Offering as contemplated
by the Memorandum; the Placement Agent is, and at all times through the date
of
the final sale of a Unit shall remain, a member in good standing of the National
Association of Securities Dealers, Inc. (“NASD”); the Placement Agent will not
reallow discounts or pay commissions or other compensation for participation
in
the distribution of the Offering in the United States to any broker-dealer
or
person which is not a member of the NASD; the Placement Agent shall act as
an
independent contractor, and nothing herein shall constitute the Placement Agent
an employee of the Company; the Placement Agent shall not make sales of Units
to
discretionary accounts.
Th
e
Placement Agent may reallow discounts or pay commissions or other compensation
to any foreign bank, person, dealer or institution for participation in the
distribution of the Offering outside the United States to non-U.S. persons
(notwithstanding that such foreign bank, person, dealer or institution may
not
be a member of the NASD
.
(d)
In
connection with the offer, offer for sale and sale of the Units, the Placement
Agent (and its representatives and agents) shall conform to and comply with
(i)
the provisions of the Rules of Fair Practice of the NASD, (ii) applicable
provisions of federal law, including without limitation the Securities Act,
the
Exchange Act and the Rules and Regulations, and (iii) the State Acts and the
rules and regulations thereunder, including without limitation those referred
to
in such letters regarding state securities and “blue sky” matters (“Blue Sky
Letters”) as are prepared by counsel for the Company and sent to the Placement
Agent from time to time, with regard to, among other things, the period during
which and conditions under which the Units may be offered, offered for sale
and
sold in various states; the Placement Agent shall not distribute the Memorandum
or otherwise commence the Offering in any jurisdiction without prior
confirmation from the Company or its counsel that the Offering may be commenced
under applicable securities laws, rules and regulations.
(e)
The
Placement Agent will use its best efforts to procure subscribers for the Units
and will conduct the Offering in compliance with the suitability standards
set
forth in the Memorandum and with the requirements of
Sections
3(b), 4(2) and/or 4(6) of the Securities Act, Regulation S and Rule 506 of
Regulation D, as and to the extent applicable to the Offering
;
accordingly, at all times through the date of the final sale of a Unit, the
Placement Agent will have:
(i)
not
made
any untrue statement of a material fact and not omitted to state a material
fact
required to be stated or necessary to make any statement made not misleading,
to
the extent any representations are made by the Placement Agent concerning the
Offering or matters set forth in the Memorandum and Company Data other than
those set forth in the Memorandum and Company Data;
(ii)
not
offered, offered for sale, or sold the Units by means of: (A) any advertisement,
article, notice, or other communication mentioning the Units published in any
newspaper, magazine or similar medium or broadcast over television or radio;
(B)
any seminar or meeting, the attendees of which have been invited by any general
solicitation or general advertising; or (C)
any
letter, circular, notice, or other written communication, unless the
communication is accompanied or preceded by the Memorandum, except to the extent
that any of the foregoing are permitted under or in connection with offers
or
sales to non-U.S. persons under Regulation S;
(iii)
prior
to
the sale of any of the Units, reasonably believed that each subscriber and
his
or her purchaser representative, if any, met the suitability and other investor
standards set forth in the Memorandum and the Blue Sky Letters, and the
Placement Agent will have prepared and maintained, for your benefit and the
benefit of the Company, file memoranda and other appropriate records
substantiating the foregoing;
(iv)
only
used
sales materials other than the Memorandum and Company Data which have been
approved for use in the Offering by the Company, and refrained from providing
any such materials to any offeree unless such materials were accompanied or
preceded by the Memorandum;
(v)
provided
each offeree with a copy of the Memorandum;
(vi)
promptly
distributed any amendment or supplement to the Memorandum provided to the
Placement Agent by the Company under this Agreement to persons who had
previously received a copy of the Memorandum from the Placement Agent and who
the Placement Agent believed continued to be interested in the Units and have
included such amendment or supplement in all deliveries of the Memorandum made
after receipt of any such amendment or supplement; and
(vii)
not
made
any representations on behalf of the Company other than those
contained
in the Memorandum and the Company Data, nor shall the Placement Agent have
acted
as
an
agent
of the Company or for the Company in any other capacity, except as expressly
set
forth
herein.
4.
Compensation
and Expenses.
(a)
The
Company agrees to pay to the Placement Agent a placement fee of ten percent
(10%) of the aggregate gross offering proceeds of all of the Units sold. The
Placement Agent may instruct the Company to pay a portion of any placement
fee
due directly to Participating Agents. Such placement fee shall be due and
payable at the Closing. The Company also agrees to pay to the Placement Agent,
as warrant placement agent for transactions involving the exercise of any
Warrants, which exercise is solicited by the Placement Agent, a warrant
solicitation fee of five percent (5%) of the aggregate exercise price received.
(b)
In
addition, the Company shall issue and sell, at the Closing, to the Placement
Agent or its designees 1 warrant (covering one share of Common Stock) for every
10 Units sold in the Offering at a price of $0.0001 per warrant (“Agent
Warrants”). Each Agent Warrant shall entitle the holder thereof to purchase one
share of Common Stock. The Agent Warrants shall be non-redeemable and shall
be
exercisable at any time after the Closing at a price equal $6.25 per share,
on a
net-issuance or cashless basis. The Company hereby grants the same registration
rights to the Placement Agent with respect to the shares of common stock
underlying the Agent Warrants as are granted to investors with respect to the
shares of Common Stock and the Warrants as set forth in this Agreement and
the
Memorandum. The Agent Warrants will expire five (5) years from the date of
issuance.
(c)
The
Company will pay all costs and expenses related to the Offering and/or the
performance of the Company's obligations under this Agreement, including
preparation of the Memorandum, preparation of related documentation, accounting
fees, legal fees, experts fees, consultants' fees, escrow fees, filing fees
with
the SEC and applicable states, any costs and expenses to qualify the Units
for
sale in any state, and any all costs and expenses for investor or road show
presentations. Notwithstanding the foregoing, the Company shall not be
responsible for any expenses of the Placement Agent or Participating Agents
incurred in connection with the Offering, including, but without limitation,
attorneys' fee, operating expenses, travel expenses and other incidental
expenses incurred by the Placement Agent or the Participating Agents; except
that the Company shall pay the Placement Agent a non-accountable expense
allowance equal to three percent (3%) of the aggregate gross offering proceeds
of all of the Units sold (“Allowance”).
5.
Covenants
of the Company.
The
Company covenants and agrees that it will:
(a)
Comply
with all requirements imposed upon it by the Securities Act, as now and
hereafter amended, by the Rules and Regulations from time to time in force,
and
by all State Acts, to permit the continuance of offers and sales of the Units
in
accordance with the provisions of Sections 3(b), 4(2) and/or 4(6) of the
Securities Act, Regulation S and Rule 506 of Regulation D, as and to the extent
applicable to the Offering, and the Memorandum. During the Offering Period,
the
Company will amend or supplement the Memorandum in order to make such Memorandum
comply with the requirements of the Securities Act, the Rules and Regulations
and the State Acts.
(b)
Until
the
termination of the Offering Period, furnish to the Placement Agent information
necessary to keep the Memorandum fair, accurate and complete in all material
respects.
(c)
If
at any
time any event occurs as a result of which the Memorandum would include an
untrue statement of a material fact or, in view of the circumstances under
which
they were made
,
omit
to
state any material fact necessary to make the statements therein not misleading,
the Company will notify the Placement Agent thereof (unless the information
shall have been received from the Placement Agent) and will effect the
preparation of an amended or supplemental Memorandum which will correct such
statement or omission.
(d)
Upon
the
Placement Agent's reasonable request, the Company will prepare an amended or
supplemental Memorandum and take any other action which may be necessary of
advisable in connection with the offer and sale of the Units.
(e)
Not
offer, offer to sell, offer for sale or sell any of the Units of the Company
or
other securities, except and to the extent any such offer, offer to sell, offer
for sale or sale shall not render unavailable the exemptions from registration
and qualification requirements of the Securities Act and the State Acts relied
upon the respect to the offering and sale of the Units contemplated by this
Agreement.
(f)
Provided
their subscriptions are accepted by the Company and approved by the Placement
Agent, issue the shares of Common Stock and Warrants with respect to the Units
to the holders in accordance with the description of the procedures as set
forth
in the Memorandum and the subscription documents to be delivered with the
Memorandum.
(g)
Prepare,
execute and file a Form D (and any and all amendments or supplements thereto)
with the SEC in timely manner and deliver copies thereof to the Placement Agent,
together with copies of all forms (including without limitation, Form Ds) and
other documents and/or materials filed either before or after the Closing,
and
comply with Regulation D and the State Acts and make any fillings required
by
the SEC and state securities authorities in a timely manner.
(h)
The
Company
will make available for inspection by the Placement Agent or its authorized
representatives, at the Company’s principal office during normal business hours,
any information and documents relating to the business and operations of the
Company as the Placement Agent may reasonably request and as are available
to
the Company or obtainable by it without unreasonable effort or expense.
(i)
The
Company will apply the net proceeds from the sale of the Units as set forth
in
the Memorandum
.
(j)
The
Company shall at all times reserve and keep available such number of authorized
shares of its common stock as are sufficient to permit the exercise of the
Warrants and Agent Warrants; all shares of common stock issued upon the exercise
of Warrants and Agent Warrants, upon receipt of full payment therefore, will
be
duly authorized, validly and legally issued, fully paid and non-assessable,
and
such common stock will not have been issued in violation of or subject to any
preemptive rights provided for by law or by the Company's Charter Documents
or
be subject to any lien, claim, encumbrance, security interest, preemptive rights
or any other claim of any third party.
(k)
The
Company shall file such registration statements and include such securities
of
the Company in such registration statements filed under the Securities Act
as
specifically provided in the Memorandum and the subscription agreement entered
into by the purchaser of the Units.
6.
Covenants
of Placement Agent.
The
Placement Agent covenants and agrees that it will:
(a)
Comply
with all requirements imposed upon it by the Securities Act, as now and
hereafter amended, by the Rules and Regulations from time to time in force,
and
by all State Acts, to permit the continuance of offers and sales of the Units
in
accordance with Sections 3(b), 4(2) and/or 4(6) of the Securities Act,
Regulation S and Rule 506 of Regulation D, as and to the extent applicable
to
the Offering, and the Memorandum.
(b)
Comply
with all applicable rules of the NASD and any other laws, rules and regulations
applicable to broker-dealers.
(c)
Not
offer, offer to sell, offer for sale or sell any of the Units of the Company
or
other securities, except and to the extent any such offer, offer to sell, offer
for sale or sale shall nor render unavailable the exemptions from registration
and qualification requirements of the Securities Act and the State Acts relied
upon with respect to the offering and sale of the Units contemplated by this
Agreement.
7.
Conditions
of Closing.
The
purchase of, and payment for, the Units on the Closing shall be subject to
the
continuing accuracy of the representations and warranties of the Company and
the
Placement Agent as of the date hereof and as of the Closing, to the performance
by the Company and Placement Agent of their respective obligations hereunder,
and to the following conditions:
(a)
The
Placement Agent's obligations as provided herein shall be subject to the
accuracy of the representations, warranties and covenants of the Company herein
contained as of the date hereof and as of the Closing, and to the performance
by
the Company of its obligations hereunder to be performed.
(b)
The
Closing of the Offering shall be subject to the Company's acceptance of
subscriptions in such amount as mutually determined by the Company and the
Placement Agent, but not less than the Minimum Amount, and subject to the
Placement Agent’s approval of such subscriptions.
(c)
The
Closing of the Offering shall be subject to the closing of the merger
transaction (“Merger”) contemplated under that certain Agreement and Plan of
Merger by and between the Company and Wentworth I, Inc. (“Wentworth”) dated
January 12, 2006 (“Merger Agreement”).
(d)
The
Closing of the Offering shall be subject to the satisfaction of the conditions
set forth in the subscription agreement between the Company and each purchaser
of Units.
(e)
At
the
Closing, the Company shall:
(1)
Accept
subscriptions of qualifying potential purchasers that the Company reasonably
believes to be accredited investors under Regulation D and the State Acts,
in
accordance with the Memorandum.
(2)
Issue
and
deliver the shares of Common Stock and the Warrants with respect to the Units
to
subscribers as described in the Memorandum.
(3)
Issue
and
deliver the Agent Warrants to the Placement Agent as provided
hereunder.
(c)
At
the
Closing, if any, the Placement Agent shall:
(1)
Deliver
to the Company all subscription agreements that the Company agrees are
acceptable.
(2)
Receive
from the Company or give assignment instructions for all compensation, including
Agent Warrants, payable to the Placement Agent.
8.
Indemnification.
(a)
The
Placement Agent and each of the Participating Agents, severally and not jointly,
agree to indemnify and hold the Company and the directors, officers, employees,
agents, attorneys, shareholders and control persons (as defined under federal
and state securities laws) of the Company, and the respective heirs, personal
representatives and assigns of each of the foregoing (collectively, the "Company
Indemnified Persons") harmless from and against any loss, liability, claim,
damage and expense (including, but not limited to, expenses reasonably incurred
in investigating, preparing or defending against any litigation, commenced
or
threatened, or any claim whatsoever based upon) to which the Company Indemnified
Persons may become subject, under the Securities Act or otherwise, insofar
as
such losses, claims, damages, liabilities, costs and expenses (including
reasonable attorneys' and experts' fees) arise solely out of: (i) any breach
of
any representation, warranty, agreement or covenant under this Agreement by
Placement Agent or under the Dealer Agreement by Participating Agents, (ii)
any
untrue statement or alleged untrue statement of any material fact contained
in
the Memorandum, or any amendment or supplement thereto, or arise out of or
are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Memorandum or such supplement or such amendment in reliance upon and
in
conformity with information furnished to the Company by the Placement Agent,
(iii) any statement made, either orally or in a writing other than the
Memorandum or the Company Data, by the Placement Agent or the Participating
Agents containing an untrue statement or alleged untrue statement of any
material fact or the omission or alleged omission to state a material fact
required to be stated or necessary to make the statements not misleading, unless
such statements or omissions are made in reliance upon or in conformity with
statements made or information provided by the Company and/or the actions of
the
Company, and/or (iv) any amount paid in settlement of any litigation, commenced
or threatened, or of any claim based upon any of the matters under (i) through
(iii) (including, but not limited to, expenses reasonably incurred in
investigating, preparing or defending against any such litigation or claim)
if
such settlement is affected with the written consent of the Placement Agent
and/or the effected Participating Agents.
If
for
any reason, the foregoing indemnification is unavailable to any Company
Indemnified Persons, then the Placement Agent or Participating Agents shall
contribute to the amount paid or payable by any such Company Indemnified Person
as a result of such loss, claim, damage or liability in such proportion as
is
appropriate to reflect the relative fault of the Placement Agent or
Participating Agents and any Company Indemnified Person.
Promptly
after a Company Indemnified Person receives notice of the commencement of any
action, claim, proceeding or investigation (“Action”), such Company Indemnified
Person, if a claim in respect thereof is to be made against the Placement Agent
or Participating Agents under this Section 8(a), will notify the Placement
Agent
or Participating Agents of the commencement thereof. The omission to so notify
the Placement Agent or Participating Agents will relieve the Placement Agent
and
Participating Agents from any liability which they may have to any Company
Indemnified Person under this Section 8(a) if the Placement Agent or
Participating Agents have been prejudiced in asserting, or shall have lost
the
right to assert, a legal defense by reason of such omission. The Placement
Agent
or Participating Agents will be entitled to participate in, and, to the extent
that they may wish, to assume the defense thereof subject to the provisions
herein stated, with counsel reasonably satisfactory to such Company Indemnified
Person. The Company Indemnified Person will have the right to employ separate
counsel in any such Action and to participate in the defense thereof but the
fees and expenses of such counsel will be at the expense of the Company
Indemnified Person if the Placement Agent or Participating Agents have assumed
the defense of the Action with counsel reasonably satisfactory to the Company
Indemnified Person. No settlement of any Action against a Company Indemnified
Person for which indemnification from the Placement Agent or Participating
Agents is sought will be made without the consent of the Placement Agent or
Participating Agents.
(b)
The
Company agrees to indemnify and hold the Placement Agent and Participating
Agents, and the directors, officers, employees, agents, attorneys, shareholders
and control persons (as defined under federal and state securities laws) of
the
Placement Agent and Participating Agents, and the respective heirs, personal
representatives and assigns of each of the foregoing (collectively, the "Agent
Indemnified Persons") harmless from and against any loss, liability, claim,
damage and expense (including, but not limited to, expenses reasonably incurred
in investigating, preparing or defending against any litigation, commenced
or
threatened, or any claim whatsoever based upon) to which the Agent Indemnified
Persons may become subject, under the Securities Act or otherwise, insofar
as
such losses, claims, damages, liabilities, costs and expenses (including
reasonable attorneys' and experts' fees) arise out of or relate to: (i) any
breach of any representation, warranty, agreement or covenant under this
Agreement by the Company, (ii) any untrue statement or alleged untrue statement
of any material fact contained in the Memorandum, or any amendment or supplement
thereto, or the Company Data, or arise out of or are based upon the omission
or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, (iii) any statement
made, either orally or in a writing other than the Memorandum or the Company
Data, by the Company containing an untrue statement or alleged untrue statement
of any material fact or the omission or alleged omission to state a material
fact required to be stated or necessary to make the statements not misleading,
and/or (iv) any amount paid in settlement of any litigation, commenced or
threatened, or of any claim based upon any of the matters under (i) through
(iii) (including, but not limited to, expenses reasonably incurred in
investigating, preparing or defending against any such litigation or claim)
if
such settlement is affected with the written consent of the Company;
provided,
however,
that the
Company shall not be liable to any Agent Indemnified Persons to the extent
that
any such losses, claims, damages, liabilities, costs or expenses, or any actions
in respect thereof, arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the Memorandum
or such amendment or such supplement in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Placement
Agent
If
for
any reason, the foregoing indemnification is unavailable to any Agent
Indemnified Persons, then the Company shall contribute to the amount paid or
payable by any such Agent Indemnified Persons as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect the relative
fault of the Company and any Agent Indemnified Person.
Promptly
after an Agent Indemnified Person receives notice of the commencement of any
action, claim, proceeding or investigation (“Action”), such Agent Indemnified
Person, if a claim in respect thereof is to be made against the Company under
this Section 8(b), will notify the Company of the commencement thereof. The
omission to so notify the Company will relieve the Company from any liability
which it may have to any Agent Indemnified Person under this Section 8(b) if
the
Company has been prejudiced in asserting, or shall have lost the right to
assert, a legal defense by reason of such omission. The Company will be entitled
to participate in, and, to the extent that they may wish, to assume the defense
thereof subject to the provisions herein stated, with counsel reasonably
satisfactory to such Agent Indemnified Person. The Agent Indemnified Person
will
have the right to employ separate counsel in any such Action and to participate
in the defense thereof but the fees and expenses of such counsel will be at
the
expense of the Agent Indemnified Person if the Company has assumed the defense
of the Action with counsel reasonably satisfactory to the Agent Indemnified
Person. No settlement of any Action against an Agent Indemnified Person for
which indemnification from the Company is sought will be made without the
consent of the Company.
9.
Representations,
Indemnities and Agreements to Survive Sale and Payment
.
The
respective representations, indemnities, warranties, covenants and other
agreements of the Company and the Placement Agent set forth in or made pursuant
to this Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Placement Agent, the Company, or
any
Agent Indemnified Person or Company Indemnified Person, and shall survive
closing, delivery of, and payment for the Units.
10.
Termination
of Agreement
.
Notwithstanding any of the terms and provisions thereof, this Agreement may
be
terminated by the Placement Agent based on a material breach of this Agreement
by the Company. The Placement Agent shall give fifteen (15) days' prior written
notice to the Company of such material breach, and the Company shall have thirty
(30) days to cure such material breach before the Placement Agent may terminate
the Agreement. In the event the Placement Agent reasonably determines that
the
Units are not marketable, notwithstanding its best efforts to sell the Units,
the Placement Agent may terminate this Agreement with thirty (30) days' prior
written notice to the Company.
In
the
event of any termination this Agreement or the expiration of the Offering
Period, the Placement Agent shall be entitled to; (i) any fees and compensation
to which it was entitled as of the date of termination or expiration, and (ii)
the fees and compensation as set forth in Section 4 for any securities sold
by
Company during the one (1) year period following such expiration or termination
to any investor introduced by Placement Agent and/or any Participating Agent.
Additionally,
Sections 4, 8, 9, 10, 11, 12 and 14 shall survive any termination or survive
closing, delivery of, and payment for the Units.
11.
Notices.
All
notices, requests, demands or other communications with respect to this
Agreement shall be in writing and shall be personally delivered or mailed,
postage prepaid, certified mail, or delivered by facsimile or a nationally
recognized express courier service, charges prepaid, to the Company or Placement
Agent at the addresses set forth in this Agreement (or such other addresses
as
the parties may specify from time to time in accordance with this section).
Any
such notice shall, when sent in accordance with the preceding sentence, be
deemed to have been given and received, on the earliest of:(i) on the day
personally delivered including by facsimile, (ii) on the third day following
the
date mailed, or (iii) twenty-four hours after shipment by such courier
service.
|
|
If
to the Company:
|
Aero
Grow International, Inc.
|
|
|
|
900
28
th
Street, Suite 201
|
|
|
|
Boulder,
CO 80303
|
|
|
|
Attn:
W. Michael Bissonnette, CEO
|
|
|
|
(303)
444-7755
|
|
|
|
(303)
444-0406
telecopy
|
|
|
|
|
|
|
|
|
|
|
If
to the Placement Agent
|
Keating
Securities, LLC
|
|
|
|
5251
DTC Parkway, Suite 1090
|
|
|
|
Greenwood
Village, CO 80111
|
|
|
|
Attn:
Timothy J. Keating, President
|
|
|
|
(720)
889 -0131
|
|
|
|
(720)
889-0139 telecopy
|
12.
Successors.
This
Agreement shall be binding upon and inure solely to the benefit of the Placement
Agent and the Company and, to the extent provided in Section 8, an Agent
Indemnified Person or Company Indemnified Person, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser
of
any of the Units shall be construed a successor, representative or assignee
by
reason of such purchase.
13.
Right
of Exclusive Representation
.
During
the one year period following the Closing of the Offering, the Company grants
Placement Agent the right to act as the Company’s exclusive placement agent
and/or managing underwriter for any private placement or public offering of
securities by the Company and as the Company’s exclusive financial advisor for
any merger or acquisition involving the Company. This provision will not apply
to any sale of securities to employees.
|
14.
|
Miscellaneous
Provisions.
|
(a)
Construction.
This
agreement shall be governed by, subject to an construed in accordance with
the
laws of the state of Colorado without regard to such state’s conflicts of law
principles.
(b)
Severability
.
If any
portion of this Agreement shall be held invalid or inoperative, then, so far
as
is reasonable and possible (i) the remainder of this Agreement shall be
considered valid and operative, and (ii) effect shall be given to the intent
manifested by the portion held invalid or inoperative.
(c)
Modification
or Amendment
.
This
Agreement may not be modified or amended except by written agreement executed
by
the parties hereto.
(d)
Number
and Gender of Words.
Whenever
the contest so requires, the masculine shall include the feminine and neuter,
and the singular shall include the plural, and conversely.
(e)
Other
Instruments; Counterparts
.
The
parties hereto covenant and agree that they will execute such other and further
instruments and documents are or may become necessary or convenient to effect
and carry out the terms of this Agreement. This Agreement may be executed by
facsimile signatures and in multiple counterparts, each of which shall be deemed
an original. It shall not be necessary that each party executes each
counterpart, or that any one counterpart be executed by more than one party
so
long as each party executes at least one counterpart.
(f)
No
Partnership
.
The
Placement Agent is not a principal of or a partner with, or does not control
in
any way, the Company or its employees or agents.
(g)
Announcements.
.
Before
the Company releases any information referring to the Placement Agent’s role
under this Offering or uses Placement Agent’s name in a manner which may result
in public dissemination thereof, the Company shall furnish drafts of all
documents or prepared oral statements to Placement Agent for comments, and
shall
not release any information relating thereto without the prior written consent
of the Placement Agent. Nothing herein shall prevent the Company from releasing
any information to the extent that such release is required by law, rule or
regulation. The Company agrees that, following the completion of the Offering,
the Placement Agent shall have the right to place “tomb stone” advertisements in
financial and other newspapers and journals, at the Company’s cost, describing
its services to the Company hereunder, provided that Placement Agent will submit
a copy of any such advertisements to the Company for its prior approval, which
approval shall not be unreasonably withheld.
(h)
Assignment
.
The
Placement Agent may assign this Agreement to another company or firm under
its
common control. Otherwise, this Agreement shall not be assignable by any party
to this Agreement without the express prior written consent of the other party
to the Agreement, and in the event of an attempted assignment by one party
to
this Agreement without such consent, such attempted assignment shall be void
and
without effect.
(i)
Parties
.
This
Agreement shall be binding upon and inure solely to the benefit of the parties
hereto and any permitted assigns, and no other person shall have or be construed
to have any legal or equitable right, remedy or claim under or in respect of
or
by virtue of this Agreement or any provision herein contained, except that
the
Participating Dealers shall be a third party beneficiary of the provisions
of
Section 8(b) hereof.
(j)
Entire
Agreement
.
This
Agreement contains the entire understanding between the parties and supersedes
any prior understandings or written or oral agreements between them respecting
the subject matter hereof.
(k)
Consent
to Jurisdiction and Waiver of Trial by Jury.
Each
party hereto; (i) consents to personal jurisdiction and service and venue
in any court in which a claim subject to this agreement is brought against
the
other party hereto or any other Indemnified Party; and (ii) waives all
right to trial by jury in any action, proceeding or counterclaim (whether based
upon contract, tort or otherwise) related to or arising out of the engagement
of
Placement Agent pursuant to, or the performance by Placement Agent of the
services contemplated by, this Agreement.
(l)
Attorneys’
Fees
.
In the
event any party hereto shall commence legal proceedings against the other to
enforce the terms hereof, or to declare rights hereunder, as the result of
a
breach of any covenant or condition of this Agreement, the prevailing party
in
any such proceeding shall be entitled to recover from the losing party its
costs
of suit, including reasonable attorneys’ fees, as may be fixed by the
court.
[Remainder
of this page intentionally left blank.]
If
the
foregoing is in accordance with your understanding, please sign and return
to us
a counterpart hereof, whereupon this Agreement and the Placement Agent's
acceptance hereof shall constitute a binding agreement between you, as the
Placement Agent, and the Company.
Aero
Grow International, Inc
.
By:
___________________________________
W. Michael Bissonnette, CEO
ACCEPTED
AND AGREED TO:
Keating
Securities, LLC
By:
___________________________________
Timothy J. Keating, President
Date:
_________________________________
EXHIBIT
10.10
THIS
FORM HAS IMPORTANT LEGAL CONSEQUENCES AND
THE
ENTITIES SHOULD CONSULT LEGAL COUNSEL BEFORE SIGNING
BUSINESS
LEASE
This
lease, dated December 8, 2004, is between DMN Partnership by Investors
Independent Trust Company, Agent, as Landlord, and Aerogrow International,
as
Tenant.
In
consideration of the payment of the rent and the performance of the covenants
and agreements by the Tenant set forth herein, the Landlord does hereby lease
to
the Tenant the following described premises situate in Boulder County, in
the
State of Colorado; the address of which is 2885 E. Aurora Avenue #13, Boulder,
CO 80303.
Said
premises, with all the appurtenances, are leased to the Tenant from the date
of
January 1, 2005, until the date of December 30, 2005 at and for a rental
for the
full term of $12,000 payable in monthly installments of $1,000, in advance,
on
the 1st day of each calendar month during the term of this lease, payable
at DMN
Partnership c/o Investors Independent Trust Co., 507 Canyon Blvd., Boulder,
CO,
80302 Attn: Mike Lammers, without notice.
THE
TENANT, IN CONSIDERATION OF THE LEASING OF THE PREMISES AGREES AS
FOLLOWS:
1.
The
Tenant shall pay the rent for the premises above-described.
2.
The
Tenant shall, at the expiration of this lease, surrender the premises in
as good
a condition as when the Tenant entered the premises, ordinary wear and tear
excepted. The Tenant shall keep all sidewalks on and around the premises
free
and clear of ice and snow; keep the entire exterior premises free from all
litter, dirt, debris and obstructions; and keep the premises in a clean and
sanitary condition as required by the ordinances of the city and county in
which
the property is situate.
3.
The
Tenant shall not sublet any part of the premises, nor assign the lease, or
any
interest therein, without the written consent of the Landlord.
4.
The
Tenant shall use the premises only as operation of Aerogrow International
which
may include testing and research and shall not use the premises for any purposes
prohibited by the laws of the United States or the State of Colorado, or
of the
ordinances of the city or town in which said premises are located, and shall
neither permit nor suffer any disorderly conduct, noise or nuisance having
a
tendency to annoy or disturb any persons occupying adjacent
premises.
5.
The
Tenant shall neither hold, nor attempt to hold, the Landlord, its agents,
contractors and employees, liable for any injury, damage, claims or loss
to
person or property occasioned by any accident, condition or casualty to,
upon,
or about the premises, including, but not limited to, defective wiring, the
breaking or stopping of the plumbing or sewage upon the premises, unless
such
accident, condition or casualty is directly caused by intentional or reckless
acts or omission of the Landlord. Notwithstanding any duty the Landlord may
have
hereunder to repair or maintain the premises, in the event that the improvements
upon the premises are damaged by the negligent, reckless or intentional act
or
omission of the Tenant or any employees, agents, invitees, licensees or
contractors, the Tenant shall bear the full cost of such repair or replacement.
The Tenant shall hold Landlord, Landlord's agents and their respective
successors and assigns, harmless and indemnified from all injury, loss, claims
or damage to any person or property while on the demised premises or any
other
part of Landlord's property, or arising in any way out of Tenant's business,
which is occasioned by an act or omission of Tenant, its employees, agents,
invitees, licensees or contractors. The Landlord is not responsible for any
damage or destruction to the Tenant's personal property.
6.
The
Tenant shall neither permit nor suffer said premises, or the walls or floors
thereof, to be endangered by overloading, nor said premises to be used for
any
purpose which would render the insurance thereon void or the insurance risk
more
hazardous, nor make any alterations in or changes in, upon, or about said
premises without first obtaining the written consent of the
Landlord.
7.
The
Tenant shall obtain and keep in full force, at Tenant's expense, fire and
liability insurance as may be reasonably required by the Landlord. Tenant
shall
provide copies of such insurance policies upon the Landlord's
request.
8.
The
Tenant shall permit the Landlord to place a "For Rent" sign upon the leased
premises at any time after sixty (60) days before the end of this
lease.
9.
The
Tenant shall allow the Landlord to enter upon the premises at any reasonable
hour.
IT
IS EXPRESSLY UNDERSTOOD AND AGREED BETWEEN LANDLORD AND TENANT AS
FOLLOWS:
10.
The
Tenant shall be responsible for paying the following:
x
Electric
x
Gas
o
Water
o
Sewer
x
Phone
o
Refuse
Disposal
x
Janitorial
Services
o
Other
__________________________________________________________________________________________
The
x
Landlord
o
Tenant
agrees to keep all the improvements upon the premises, including but not
limited
to, structural components, interior and exterior walls, floors, ceiling,
roofs,
sewer connections, plumbing, wiring and glass in good maintenance and repair
at
their expense. In the event the Landlord is responsible for repair of the
premises, the Tenant shall be obliged to notify the Landlord of any condition
upon the premises requiring repair and the Landlord shall be provided a
reasonable time to accomplish said repair.
11.
No
assent, express or implied, to any breach or default of any one or more of
the
agreements hereof shall be deemed or taken to be a waiver of any succeeding
or
other breach or default.
12.
If,
after
the expiration of this lease, the Tenant shall remain in possession of the
promises and continue to pay rent without a written agreement as to such
possession, then such tenancy shall be regarded as a month-to-month tenancy,
at
a monthly rental, payable in advance, equivalent to the last month's rent
paid
under this lease, and subject to all the terms and conditions of this
lease.
13.
If
the
premises are left vacant and any part of the rent reserved hereunder is not
paid, then the Landlord may, without being obligated to do so, and without
terminating this lease, retake possession of the said premises and rent the
same
for such rent, and upon such conditions as the Landlord may think best, making
such changes and repairs as may be required, giving credit for the amount
of
rent so received less all expenses of such changes and repairs, and the Tenant
shall be liable for the balance of the rent herein reserved until the expiration
of the term of this lease.
14.
The
Landlord acknowledges receipt of a deposit in the amount of $3,500 to be
held by
the Landlord for the faithful performance of all of the terms, conditions
and
covenants of this lease. The Landlord may apply the deposit to cure any default
under the terms of this lease and shall account to the Tenant for the balance.
The Tenant may not apply the deposit hereunder to the payment of the rent
reserved hereunder or the performance of other obligations.
15.
If
the
Tenant shall be in arrears in payment of any installment of rent, or any
portion
thereof, or in default of any other covenants or agreements set forth in
this
lease, and the default remains uncorrected for a period of three (3) days
after
the Landlord has given written notice thereof pursuant to applicable law,
then
the Landlord may, at the Landlord's option, undertake any of the following
remedies without limitation: (a) declare the term of the lease ended; (b)
terminate the Tenant's right to possession of the premises and reenter and
repossess the premises pursuant to applicable provisions of the Colorado
Forcible Entry and Detainer Statute; (c) recover all present and future damages,
costs and other relief to which the Landlord is entitled; (d) pursue breach
of
contract remedies; and/or (e) pursue any all available remedies in law or
equity. In the event possession is terminated by a reason of default prior
to
expiration of the term, the Tenant shall be responsible for the rent occurring
for the remainder of the term, subject to the Landlord's duty to mitigate
such
damages. Pursuant to applicable law [13-40-104(d.5), (e.5) and 13-40-107.5.
C.R.S.] which is incorporated by this reference, in the event repeated or
substantial default(s) under the lease occur, the Landlord may terminate
the
Tenant's possession upon a written Notice to Quit, without a right to cure.
Upon
such termination, the Landlord shall have available any and all of the
above-listed remedies.
16.
If
the
property or the premises shall be destroyed in whole or in part by fire,
the
elements, or other casualty and if, in the sole opinion of the Landlord,
they
cannot be repaired within ninety (90) days from said injury and the Landlord
informs the Tenant of said decision; or if the premises are damaged in any
degree and the Landlord informs the Tenant it does not desire to repair same
and
desires to terminate this lease; then this lease shall terminate on the date
of
such injury. In the event of such termination, the Tenant shall immediately
surrender the possession of the premises and all rights therein to the Landlord;
shall be granted a license to enter the premises at reasonable times to remove
the Tenant's property; and shall not be liable for rent accruing subsequent
to
said event. The Landlord shall have the right to immediately enter and take
possession of the premises and shall not be liable for any loss, damage or
injury to the property or person of the Tenant or occupancy of, in or upon
the
premises.
If
the
Landlord repairs the premises within ninety (90) days, this lease shall continue
in full force and effect and the Tenant shall not be required to pay rent
for
any portion of said ninety (90) days during which the premises are wholly
unfit
for occupancy.
17.
In
the
event any dispute arises concerning the terms of this lease or the non-payment
of any sums under this lease, and the matter is turned over to an attorney,
the
party prevailing in such dispute shall be entitled, in addition to other
damages
or costs, to receive reasonable attorneys' fees from the other
party.
18.
In
the
event any payment required hereunder is not made within ten (10) days after
the
payment is due, a late charge in the amount of 10% of the payment will be
paid
by the Tenant.
19.
In
the
event of a condemnation or other taking by any governmental agency, all proceeds
shall be paid to the Landlord hereunder, the Tenant waiving all right to
any
such payments.
20.
This
lease is made with the express understanding and agreement that in the event
the
Tenant becomes insolvent, the Landlord may declare this lease ended, and
all
rights of the Tenant hereunder shall terminate and cease.
21.
The
Tenant and the Landlord further agree:
*
Rental
starts January 1, 2005
*
Landlord
to pay taxes and insurance
*
DMN
reserves the right to show unit within 24 hour notice
*
DMN
can
give 60 day notification to vacate in case of sale
*
Aerogrow
shall have 2 weeks free rent (Dec 15 - Dec 31)
*
Initial
payment is 1st and last 2 months plus $500.00 security fee total of
$3,500
This
lease shall be subordinate to all existing and future security interests
on the
premises. All notices shall be in writing and be personally delivered or
sent by
first class mail, unless otherwise provided by law, to the respective parties.
If any term or provision of this lease shall be invalid or unenforceable,
the
remainder of this lease shall not be affected thereby and shall be valid
and
enforceable to the full extent permitted by law. This lease shall only be
modified by amendment signed by both parties. This lease shall be binding
on the
parties, their personal representatives, successors and assigns. When used
herein, the singular shall include the plural.
|
|
|
/s/
Frederic Wiedemann,
|
VP
Date:
12-08-04
|
|
|
|
|
|
|
|
|
IITC as Agent for Ken Dubach
|
|
|
|
|
|
|
|
|
|
/s/
Michael Lammers
|
Date:
12-08-04
|
|
|
|
|
|
|
|
|
GUARANTEE
|
|
For
value
received, I guarantee the payment of the rent and the performance of the
covenants and agreements by the Tenant in the within lease.
ASSIGNMENT
AND ACCEPTANCE
For
value
received ______________________________________
,
assignor, assigns all right, title and interest in and to the within lease
to
_________________________________________
,
assignee, the heirs, successors and assigns of the assignee, with the express
understanding and agreement that the assignor shall remain liable for the
full
payment of the rent reserved and the performance of all the covenants and
agreements made in the lease by the Tenant. The assignor will pay the rent
and
fully perform the covenants and agreements in case the assignee fails to
do so.
In consideration of this assignment, the assignee assumes and agrees to make
all
the payments and perform all the covenants and agreements contained in the
lease
and agreed to by the Tenant.
|
|
|
|
|
Assignor
|
Date
|
|
Assignee
|
Date
|
|
|
|
|
|
|
CONSENT
OF ASSIGNMENT
Consent
to the assignment of the within lease to ______________________________________
is
hereby
given, on the express condition, however, that the assignor shall remain
liable
for the prompt payment of the rent and performance of the covenants on the
part
of the Tenant as herein mentioned, and that no further assignment of said
lease
or sub-letting of the premises, or any part thereof, shall be made without
further written agreement.
|
|
|
|
|
Signature
|
Date
|
|
Signature
|
Date
|
|
|
|
|
|
|
LANDLORD'S
ASSIGNMENT
In
consideration of One Dollar, in hand paid, I hereby assign to
_____________________________________
my
interest in the within lease, and the rent therein reserved.
EXHIBIT
10.11
|
Subject:
|
Fw:
Offer Updated
|
|
|
Date:
|
Wednesday,
October 13, 2004 8:46 AM
|
|
|
From:
|
Randy
Seffren <randy@aerogrow.com>
|
|
|
To:
|
<michael@aerogrow.com>
|
|
In
the
first version I neglegected to add the bonus structure. It is now included
below.
-
-
-
Michael:
Thank
you
for your generous offer and interest in continuing to work with me. I am
reviewing the options and will get back to you as soon as possible.
In
order
for me to respond I want to make sure I understand the "details" of the offer.
My attempt at a summary of your offer/request follows:
A.
Immediate
Bonus of 50,000 shares of stock (in addition to the stock earned in 2004
to-date)
B.
October-December:
-
30
Hours per Week
-
Equivalent of $100,000 Annual Salary
-
Working
in Boulder Wed-Saturday Each Week
-
Travel
and Out of Pocket Expenses Paid by AeroGrow
C.
Jan-June:
-
40
Hours per Week
-
Annual
Salary of $150,000
-
Working
in Boulder 4-5 days per week
-
$1
Million in Stock Options, Strike Price at $1 per Share
-
Travel
and Out of Pocket Expenses Paid by AeroGrow
-
Particpant in the annual bonus program, to be calcuated as a pool representing
10% of the annual EBITDA. Bonus will be 25% of the pool on annual
basis.
D.
July
2005:
-
40
Hours Per Week
-
Annual
Salary of $165,000
-
Relocation to Boulder
-
Particpant in the annual bonus program, to be calcuated as a pool representing
10% of the annual EBITDA. Bonus will be 25% of the pool on annual
basis.
Michael,
please confirm or revise any of the key points detailed above. Once I have
this
information I will forward you a list of questions for our further
discussion.
Thank
you.
Randy
Seffren
847-267-8030
Office
EXHIBIT
10.12
INNOTRAC
CORPORATION
MASTER
SERVICE AGREEMENT
This
Service Agreement (this “Agreement”) is made this 7th day of October, 2005 (the
“Agreement Date”) by and between the following parties:
|
|
“Innotrac”:
|
Innotrac
Corporation, a Georgia corporation
|
|
|
|
6655
Sugarloaf Parkway
|
|
|
|
Duluth,
Georgia 30097-4916
|
|
|
|
Attn:
Suzanne
Vesper
|
|
|
|
Fax:
678-475-5884
|
|
|
|
Phone:
678-584-4234
|
|
|
|
Email:
svesper@innotrac.com
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
“Client”:
|
AeroGrow
International, Inc.
|
|
|
|
900
28
th
Street, Suite 201
|
|
|
|
Boulder,
Colorado 80303
|
|
|
|
Attn:
Randy
Seffren
|
|
|
|
Fax:
303-444-0406
|
|
|
|
Phone:
303-444-7755
|
|
|
|
Email:
randy@aerogrow.com
|
for
Services (defined below) for a duration of three (3) years from the date
of the
first shipment to a bona fide customer in the regular course of business
(the
“Go Live” date). These first three years will be known as the “Initial
Term.”
RECITALS
A.
Innotrac
is a provider of fulfillment, customer care and technology services from
various
locations in the United States;
B.
Client
desires to purchase, and Innotrac desires to furnish, certain of Innotrac’s
services in accordance with the terms and conditions of this
Agreement.
NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth
below, and other good and valuable consideration, the adequacy and receipt
of
all such consideration being hereby acknowledged, the parties hereto agree
as
follows:
Article
I
Services
and Prices
Section
1.1.
Scope
of Services.
Commencing
on the Agreement Date, Innotrac agrees to provide to Client those services
commercially reasonable and necessary to fulfill the client’s requirements (the
“Services”) more fully described in
Exhibits
A & B
.
Innotrac promises to work with due diligence commencing on the Agreement
Date to
complete a document (a “Statement of Work”) outlining the scope of work and
describing the particular additional services to be purchased by Client and
provided by Innotrac, together with final information on pricing, and time
lines
for design, development and delivery, as applicable, and will be added as
Exhibit A to the Agreement upon signature by both Client and Innotrac.
By
signing this Agreement, Client agrees to pay for the Services furnished by
Innotrac at the rates set forth in Exhibit B. Client promises to provide
Innotrac with information and assistance as required
to
complet
e
the
Statement of Work. When the parties execute the Statement of Work,
and it
has been identified to this Agreement, it shall become part of this Agreement,
and subject to the terms hereof, and the additional services and/or products
described in the Statement of Work shall thereafter be included in the Services
as
defined in
this
Agreement.
Section
1.2.
Prices
.
(a)
Client agrees to pay for the fulfillment Services furnished by Innotrac at
the
rates set forth in the Exhibit B. with Services described in Exhibit A. Subject
to Sections 1.2(b) and 1.2(c) below with regard to the amount of a Price
increase, Innotrac will not increase the Prices the first twelve (12) months
after the Go Live date. Innotrac may not increase the Prices more than once
every twelve (12) months. Innotrac will provide Client with written notice
of
such increase in Prices (an “Adjustment Notice”) at least ninety (90) calendar
days prior to the commencement of the twelve (12) month period for which
such
increase in Prices shall be effective. Any new service and/or change to services
described in Exhibits A and B will be priced and agreed to by both parties
and
pricing for the new service will be effective at the time that any necessary
addendums to Exhibits A and B are executed by both parties.
(b)
Innotrac shall not increase the Prices by more than the lesser of (i) five
percent (5%) or, (ii) the increase in CPI-W for each Adjustment Notice. For
purposes of this Agreement, “CPI-W” shall mean the official Consumer Price Index
for Urban Wage Earners and Clerical Worker, U.S. City Average, All Items
1982-84
(U.S. Department of Labor).
(c)
Notwithstanding anything to the contrary contained herein, Innotrac may increase
Prices for postage, freight, shipping services, or telephone service upon
prior
written notice Client. In the event that Innotrac’s third party vendors increase
Prices to Innotrac, notice of such price increase will be provided to Client
immediately following notice given to Innotrac and will be effective at the
time
the increase is imposed upon Innotrac. Such increases will be limited to
increases provided to Innotrac by third-party vendors and providers. Innotrac
will provide Client with written documentation of such increases. Such increases
will be passed on to Client at cost, which may include administrative fees
from
such third-party vendors. Innotrac shall provide prior written notice to
Client
of such third party vendor increases. If the revised third party vendor prices
are unacceptable to Client, Client shall stipulate to Innotrac, in writing,
an
alternate third party vendor source to be used for Client. Additionally,
in the
event Innotrac receives any price decrease from a third party vendor providing
postage, freight, other shipping services, or telephone service, for Client’s
account, Innotrac shall pass the amount of such decrease to Client.
Article
II
Innotrac’s
Representations and Responsibilities
Section
2.1.
Corporate
Power and Authority
.
Innotrac
represents that it is a corporation duly organized and existing under the
laws
of the State of Georgia with lawful power and authority to enter into this
Agreement. This Agreement shall not be binding on Innotrac unless it is executed
by an Innotrac corporate officer having full power and authority to bind
Innotrac.
Section
2.2.
Performance
.
Innotrac
will perform the Services in accordance with the terms of this Agreement,
subject to Client’s compliance with all of its precedent obligations hereunder.
If Innotrac causes an error in the course of its performance of the Services,
then Innotrac will correct such error at its expense, not to exceed the
aggregate amount of the fulfillment fee that Innotrac charged for the
deficiently performed Service plus freight. This limitation applies to all
errors in the aggregate. Notwithstanding the foregoing, Innotrac shall not
be
responsible for any loss, damage, cost or expense to Client or to any purchaser
or recipient of Products that result from any delay by Innotrac in performing
or
any failure to perform any of its obligation hereunder if such delay or failure
to perform results directly or indirectly from the failure by Client or its
representatives or suppliers to provide to Innotrac all or any of the following:
(i) sufficient quantities of Product to meet order and shipping demand in
a
timely manner; (ii) Products of proper quality that are free of defects;
(iii)
Products with proper packaging; (iv) timely, complete and accurate order
and
shipping information; (v) sufficient time to allow for changes in procedure,
product packaging or changes to Services requirements; (vi) timely approvals
and
consents.
Section
2.3.
Lost
Goods
.
If
any of
Client’s Products are lost, damaged and/or destroyed as a result of Innotrac’s
negligent acts or omissions, beyond .5% (the “Shrinkage Allowance”), of the
value of the Products, calculated on an annual basis, based on Client’s actual
cost of such Products, Client agrees that, as its sole remedy, Innotrac shall
reimburse Client for the actual replacement cost to Client for such excess
lost,
damaged and/or destroyed Products above the Shrinkage Allowance, together
with
the freight costs to Innotrac’s fulfillment center. Inventory accuracy is
calculated based on number of units in stock at the beginning of the year,
additions for receipts, subtraction for shipments and any cycle count or
reconciliation adjustments, then compared to actual number of units in stock
at
the time of the physical count.
Section
2.4.
Disclaimer
.
EXCEPT
AS
EXPRESSLY SET FORTH IN THIS ARTICLE 2, INNOTRAC MAKES NO REPRESENTATIONS
OR
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO SERVICES OR THE PRODUCTS,
AND
ANY AND ALL WARRANTIES ARE HEREBY DISCLAIMED AND EXCLUDED. INNOTRAC SHALL
NOT BE
LIABLE TO CLIENT OR ANY OTHER THIRD PARTY FOR DAMAGE OR INJURIES ON ACCOUNT
OF
DEFECTS IN ANY OF THE PRODUCTS, OR ON ACCOUNT OF DAMAGE OR INJURIES RESULTING
IN
WHOLE OR IN PART FROM PRODUCT USE OR MISUSE.
Section
2.5.
Limitation
of Liability
.
INNOTRAC’S
LIABILITY FOR CLAIMS ARISING OUT OF, RESULTING FROM, OR IN ANY WAY CONNECTED
WITH THIS AGREEMENT SHALL BE LIMITED TO THE AMOUNTS ACTUALLY PAID BY CLIENT
ALLOCABLE TO THE SERVICES INVOLVED IN THE CLAIM FOR THE THREE (3) MONTHS
PRECEDING THE EVENT OR EVENTS FIRST GIVING RISE TO SUCH CLAIM. IN NO EVENT
SHALL
INNOTRAC BE LIABLE TO CLIENT FOR ANY CONTINGENT, INDIRECT, INCIDENTAL,
CONSEQUENTIAL, EXTRA-CONTRACTUAL OR EXEMPLARY OR PUNITIVE DAMAGES, OR FOR
DAMAGES FOR LOST SALES OR PROFITS OR COST OF COVER, REGARDLESS OF WHETHER
INNOTRAC HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE LIMITATIONS
ABOVE APPLY TO ALL CAUSES OF ACTION IN THE AGGREGATE, WHETHER BASED IN CONTRACT,
TORT (INCLUDING NEGLIGENCE) OR ANY OTHER LEGAL THEORY (INCLUDING STRICT
LIABILITY).
Article
III
Client’s
Representations and Responsibilities
Section
3.1.
Corporate
Power and Authority
.
Client
represents that it is a business entity duly organized and existing under
the
laws of the State of Nevada, with lawful power and authority to enter into
this
Agreement. Client is duly qualified and in good standing and is authorized
to do
business in each jurisdiction where such qualification is required. The
individual executing this Agreement on behalf of the Client has full power
and
authority to bind Client.
Section
3.2.
Payment
Obligation
.
Client
agrees to pay Innotrac as follows:
(a)
Payment
for Services
(i)
Client
agrees to pay Innotrac for Services provided hereunder in accordance with
the
Prices set forth In the Statement of Work (subject to revision in accordance
with Section 1.2 above). Innotrac shall prepare invoices to Client on the
first
and fifteenth day of each month to be sent within five (5) business days.
Client
shall make payment of the undisputed portion of each invoice within thirty
(30)
calendar days of the date of the invoice. If Client does not pay any undisputed
portion of an invoice within said 30 day period, (1) Innotrac may, upon 30
calendar days’ written notice, discontinue providing all or any Services until
payment of the undisputed portion of the invoice is made in full, and (2)
Client
shall pay Innotrac interest on all unpaid undisputed portions at the rate
of
1.5% per month or the maximum amount allowed by law.
(ii)
Notwithstanding
anything to the contrary contained herein, upon termination of this Agreement
for any reason, Client shall remain fully responsible for payment of all
outstanding invoices, including any disputed amounts, as well as invoices
not
yet prepared respecting Services furnished prior to the date of
termination.
(iii)
In
the
event of a dispute over any invoice, Client shall pay the undisputed portion
of
the invoice and notify Innotrac in writing within twenty (20) calendar days
of
receipt of invoice and provide back-up material to support dispute. Client
shall
use commercial reasonability in reviewing and disputing charges. The parties
shall attempt to resolve such dispute through good faith negotiations within
a
timely manner, without prejudice to any of their rights or remedies under
this
Agreement or applicable law.
(iv)
If
at any
time Client has an outstanding balance in excess of twenty-thousand dollars
($20,000.00), Innotrac may, with seven days written notice, immediately
discontinue providing all or any Services until payment of the excess balance
is
made in full.
(b)
Expenses
.
Client
shall be solely responsible for payment of all costs and expenses set forth
in
Exhibit B or that Innotrac otherwise incurs on behalf of Client that are
not
specifically set forth in Exhibit B, other than expenses payable by Innotrac
under Sections 2.2 and 2.3 above. Such costs and expenses may include, but
are
not limited to, facsimile charges, postage, express delivery service used
to
transmit labels, listings and reports to Client, taxes, and import duties.
Such
costs and expenses will reflect reasonable and customary rates. Where possible,
Innotrac shall obtain Client’s written approval in advance for such costs and
expenses.
(c)
Freight
Deposit
.
Client
shall pay a freight deposit (the “Freight Deposit”) to Innotrac in an amount
equal to the freight expenses for one month, as estimated by the Forecast
(defined in Section 3.4) provided by Client and the average outbound freight
cost per shipment, as security for Client’s payment obligations hereunder.
Innotrac reserves the right to request an additional Freight Deposit should
Client’s freight expenses exceed the initial Freight Deposit. If Client defaults
in any of its payment obligations hereunder, and such default continues beyond
the applicable notice and cure period, then Innotrac may use all or part
of the
Freight Deposit for the payment of outstanding amounts to Innotrac. If Innotrac
uses such Freight Deposit as provided herein, then Client shall restore the
Freight Deposit to its original amount within fifteen (15) days after written
demand from Innotrac. The Freight Deposit is not a limitation on any of
Innotrac’s rights and remedies hereunder or at law, or liquidated damages, or an
advance payment of expenses. Client shall not be entitled to any interest
on any
amounts held by Innotrac as the Freight Deposit. Following the termination
of
this Agreement, Innotrac shall refund to Client any Freight Deposit not used
by
Innotrac as provided herein.
Section
3.3.
Product
Supply
.
Client
shall be solely responsible for acquiring and delivering to Innotrac an
inventory of Products sufficient in quantity to meet order demand, and all
such
Products shall be free of defects. Client shall ship Products to Innotrac
in a
timely manner and in quantities sufficient to allow Innotrac to fill orders
as
customer and order demand dictates. If a Product shortage exceeds thirty
(30)
days, Client shall be solely responsible for any and all additional expenses
incurred by Innotrac to notify customers (as may be required by regulations
of
the Federal Trade Commission or otherwise by law) regarding delayed orders.
Should any Federal Trade Commission notifications be required, they must
be
approved by Client prior to distribution. Client must review and approve
the
notification in a timely manner to meet any legally-imposed deadlines. In
the
event Products are received late or packaged improperly for shipment to Client’s
customers, Client shall be responsible for all costs and expenses, at Innotrac’s
retail prices, for expediting orders, repackaging Products or providing
workarounds as deemed necessary by Innotrac. Client shall notify Innotrac
promptly if any Products have been recalled by Client or any governmental
authority or are defective in any manner.
Section
3.4.
Forecasts
.
Client
will provide Innotrac with forecasts (“Forecasts”) for inbound and outbound
activity (“Activity”) for each ninety (90) day period during the Term. Client
will deliver each such forecast to Innotrac thirty (30) days before the
beginning of the 90-day period to which it pertains. Forecasts will specify
Activity on a daily basis or, alternatively, on a weekly basis to be converted
by Innotrac to a daily basis, subject to Client approval
Both
parties agree to participate in a weekly phone conference to discuss the
upcoming week’s anticipated Forecast variance (the “Forecast Call”). During the
Forecast Call or a reasonable time after the Forecast Call, Client may request
that Innotrac utilize all those labor resources necessary, including overtime,
to accommodate volumes above the Forecast and Innotrac will make best efforts
to
accommodate such a request. Should a downturn in volume be anticipated, Innotrac
will make all reasonable efforts to adjust and/or downsize labor and staffing
levels. . Innotrac makes no guarantees for service levels but does agree
to make
all reasonable and best efforts to provide adequate service levels based
upon
information provided by Client.
Section
3.5.
Tax
Matters
.
Client
agrees that it is solely responsible for the payment of any and all taxes
of any
and all taxing jurisdictions that may be imposed as a result of the sale,
storage and/or distribution of Products under the terms of this Agreement.
Client, prior to or promptly following the execution of this Agreement, shall
provide Innotrac with a schedule setting forth the jurisdictions in which
taxes
are payable and the amount of rate of such taxes. Client further agrees that
it
will reimburse Innotrac for or indemnify Innotrac against ad valorem taxes
on
inventory stored in any of Innotrac’s facilities.
Section
3.6.
Title
and Insurance
.
The
Products are solely the products of Client. Title to the Products, whether
such
Products are in transit or stored in Innotrac’s facilities, shall at all times
remain with Client until sold by Client in the ordinary course of business.
Client agrees that it is solely responsible, at its own expense, for insuring
the Products against loss and casualty however caused during the performance
of
the Service(s) under this Agreement, and Client’s insurance shall be primary to
any insurance carried by Innotrac, if any. Client shall furnish to Innotrac
Certificates of Coverage evidencing sufficient coverage no later than five
(5)
days prior to Innotrac’s initial receipt of Product. Client will also provide
Innotrac with proof of workers’ compensation insurance annually.
Section
3.7.
Indemnification
.
Client
shall indemnify, defend and hold Innotrac and its divisions, subsidiaries,
and
affiliates and their respective officers, directors, employees, agents,
successors and assigns harmless from and against any and all claims, liability,
loss, damage or injury and costs and expenses (including reasonable attorneys’
fees, costs of any suit, and amounts paid in settlement of any such claims)
(“Claims”) arising out of, relating to, or in connection with (a) the breach of
any warranty, representation or covenant on the part of Client hereunder;
(b)
the performance or nonperformance of this Agreement by Client, and any negligent
acts or omissions associated therewith; (c) the Services or the Products,
including, without limitation, Claims for personal injury, death, property
damage, environmental harm, product liability, or breach of warranty, (d)
violations of any regulations, laws, ordinances, statues or rules applicable
to
the Products or Services, including without limitation FTC or FDA; (e) unpaid
taxes, customs, or transportation charges; or (f) violations of any patent,
trademark, copyright, trade secret or other intellectual property rights
relating to the Services, the Products or Client’s marketing, labeling, sale or
distribution of any of the Products. The foregoing indemnification shall
not
apply to any Claims resulting solely from the gross negligence or willful
misconduct of Innotrac.
Section
3.8.
Client
Inventory and Payment
..
(a)
Client
hereby agrees to and acknowledges Innotrac’s rights under the Georgia Uniform
Commercial Code, including Section 7-209. Client hereby further agrees and
acknowledges that, pursuant to Section 7-209 of the Georgia Uniform Commercial
Code, Innotrac also has a right to all of Client’s goods now or hereafter in the
possession of Innotrac, and on the proceeds thereof, for charges and expenses
in
relation to other goods of Client (whenever such other goods were deposited
with
Innotrac) and for expenses necessary for preservation of such other goods
or
reasonably incurred in their sale pursuant to law. The Client hereby
acknowledges that this Agreement and each invoice of Innotrac issued hereunder
constitute “warehouse receipts” under Article 7 of the Georgia Uniform
Commercial Code.
(b)
If
the
Client fails to pay all outstanding amounts due under this Agreement within
30
days after termination of this Agreement and demand for final payment by
Innotrac, then Innotrac, at its option, may (but shall not have any obligation
to) exercise any and all rights of a warehouse under and in accordance with
the
Georgia Uniform Commercial Code. Costs incurred by Innotrac in the sale of
Products under this Section are the responsibility of Client and shall be
deducted from the proceeds of such sale. Sale of Product under this Section
does
not relieve Client of its obligation to pay the full amount of the outstanding
balance of any amounts due Innotrac under this Agreement or any other
contract.
Section
3.9.
Client
Obligations Precedent to Innotrac Performance
.
Innotrac’s
performance of its obligations under this Agreement is contingent upon Client’s
satisfactory completion of its precedent obligations that include provision
of
Products in sufficient quantity and quality to meet order and fulfillment
demand, provision of accurate order data, shipping data, and other information
necessary for Innotrac to provide the Services and the timely acceptance
and
approval of all documentation provided by Innotrac, and Client’s compliance with
all other terms and conditions of this Agreement. Innotrac will confirm Client’s
satisfactory completion of it obligations either in writing as set forth
in
Article VI or by e-mail communication. Client’s failure to satisfactorily
complete any or all of the aforementioned precedent obligations causes Innotrac
to incur expenses beyond those inherent in providing the Services, Client
shall
be liable for Innotrac’s hourly rates as set forth in the Special Projects
section of Exhibit B for fulfillment and call center activities and in the
Custom Programming section of Exhibit B for information technology activities,
whichever shall apply.
Article
IV
Publicity
Neither
party shall advertise, disclose or otherwise publicize the terms of this
Agreement or the Services without prior written consent of the other party,
provided that the parties may, however, disclose the fact that they have
entered
into a business agreement with one another after the execution of the Statement
of Work and its incorporation into this Agreement.
Article
V
Term
and
Termination
Section
5.1.
Term
of Agreement
.
The
term
of this Agreement shall commence on the Agreement Date and shall continue
until
the expiration of the Initial Term. Thereafter, this Agreement shall be
automatically renewed for additional twelve (12) month periods (each such
period
being a “Renewal Term”) unless one party delivers written notice of non-renewal
to the other party at least one hundred twenty (120) days before the last
day of
the initial term or Renewal Term then in effect.
Both
Client and Innotrac reserve the right to cancel this Agreement, and will
provide
the other Party with ninety (90) days written notice, should either Party
determine, in its sole discretion, that there is a significant change in
business that materially alters the Party’s ability to perform under the terms
of the Agreement.
Section
5.2.
Default
.
The
occurrence of any of the following events shall constitute an “Event of Default”
unless waived by the non-breaching party:
(a)
the
failure of a party to observe or perform any of its material obligations
in this
Agreement or any of its obligations under the Confidentiality Agreement,
including, but not limited to Client’s obligations of payment; or
(b)
any
material representation made by a party in this Agreement shall prove to
have
been untrue in any respect when made.
Section
5.3
Remedies
.
Upon
the
occurrence of an Event of Default, the non-breaching party shall provide
written
notice to the breaching party of, and outlining the extent of, the Event
of
Default and providing (i) ten (10) days right of cure if the Event of Default
is
the nonpayment of monies; and (ii) thirty (30) days right of cure if the
Event
of Default is for reasons other than the nonpayment of monies (provided,
however, said thirty (30) day cure period shall be extended at the discretion
of
the non-breaching party by an additional thirty (30) days if the breaching
party
has implemented efforts to cure the non-monetary breach in the initial thirty
(30) day cure period and is diligently pursuing such cure in good faith).
Should
the Event of Default in the notice not be cured within the applicable cure
period, then, in addition to all other rights and remedies at law or equity
or
otherwise, the non-breaching party may terminate this Agreement without any
further obligation or liability whatsoever, except for Client’s obligations of
full payment for Services provided as of the date of termination and the
costs
of shipping Product inventory to another location. Notwithstanding anything
to
the contrary contained herein, this Agreement may be terminated by either
party
effective upon ten (10) business days prior written notice to the other party
in
the event that the party so notified becomes the subject of any proceeding
under
any law relating to bankruptcy, insolvency, reorganization or relief of debtors
or becomes or is declared insolvent.
Section
5.4.
Return
of Product Following Termination
.
Upon
termination of this Agreement and payment in full of all outstanding amounts
due
and payable to Innotrac hereunder (plus payment by Client in advance of all
shipping costs), Innotrac shall, subject to its lien and other rights hereunder
and at law, return all remaining Product to Client at Client’s expense, and
shall provide Client an accounting of the remaining Product inventory. Until
payment in full of all amounts due to Innotrac under this Agreement are received
(plus payment by Client in advance of all shipping costs), Client agrees
that
Innotrac may retain the inventory of Products and that such inventory shall
be
subject to the lien of Innotrac pursuant to Section 3.8 above.
Article
VI
Notices
Unless
otherwise stated in this Agreement, all notices, consents, requests, and
waivers
required or permitted under this Agreement shall be given in writing, delivered
personally or by Federal Express or facsimile (receipt confirmed), to the
addresses and facsimile numbers set forth on the first page of this Agreement,
with copy to the office of the General Counsel of Innotrac Corporation. Notices
shall be deemed given upon receipt.
Article
VII
Arbitration
The
parties hereto will attempt in good faith to resolve any dispute, controversy
or
claim (“Dispute”) arising out of or relating to this Agreement promptly by
negotiations first between the parties and then between senior executives
of the
Parties. In the event that such negotiations are unsuccessful, Disputes shall
be
settled by binding arbitration conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitration
procedure shall be governed by the United States Arbitration Act, 9 U.S.C.
§§
1-16, and the award rendered by the arbitrator (s) shall be final and binding
on
the parties and may be entered in any court having jurisdiction thereof.
Such
arbitration shall be held in a location agreed upon by the parties or, if
no
location can be agreed upon, in a location selected by the arbitrator(s).
Any
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The non-prevailing party shall pay all
costs
of the proceedings, including the fees and expenses of the arbitrator and
the
reasonable attorneys’ fees and expenses of the prevailing party, unless the
arbitrator(s) determine(s) that there is not a prevailing party, in which
event
each party shall bear its own costs and to share equally the fees and expenses
of the arbitrator(s). The foregoing dispute resolution procedures, however,
do
not apply to Disputes arising under or relating to the confidentiality and
non-recruitment provisions in Article III above or the Confidentiality Agreement
attached hereto and incorporated herein as Exhibit C, which may be brought
in
any court of competent jurisdiction.
Article
VIII
Miscellaneous
Provisions
Section
8.1.
Governing
Law.
This
Agreement shall be governed and interpreted in accordance with the laws of
the
State of Georgia (without regard to the choice of law principles
thereof).
Section
8.2.
Force
Majeure
.
Neither
party shall be liable to the other for any loss, injury, delay or damage
whatsoever suffered or incurred by the other party due to causes beyond such
party’s reasonable control, including but not limited to, acts of God, strikes
or other labor disturbances, war, sabotage, casualty, embargo, flood, explosion,
act of terrorism and responses thereto, and any other cause or causes, whether
similar or dissimilar to those herein specified, which cannot be controlled
by
such party (each hereinafter called a “Condition”). If any Condition occurs,
this Agreement shall be suspended for the duration of the Condition as to
the
affected Services, and the party affected by the delay may during such
suspension buy or sell elsewhere services comparable to those to be obtained
under this Agreement, and performance of this Agreement shall resume once
the
Condition ceases. Regardless of the occurrence of a Condition, neither party
shall be relieved of the obligation to make payments to the other on account
of
Services provided, or for pricing adjustments pertaining to Services furnished,
prior to the event constituting the Condition.
Section
8.3.
Compliance
with Laws
.
Client
and Innotrac shall comply with all federal, state and local laws and regulations
applicable to the performance of their respective obligations under this
Agreement.
Section
8.4.
Severability
.
If
any
provision of this Agreement is inconsistent or contrary to any applicable
law,
rule or regulation, then such provisions shall be deemed to be modified to
the
extent required to comply with such law, rule or regulation and as so modified,
such provision and this Agreement shall continue in full force and
effect.
Section
8.5.
No
Waiver
.
The
failure to enforce at any time any of the provisions of this Agreement or
to
require at any time performance by any party of any of the provisions of
this
Agreement shall in no way be construed to be a waiver of such provisions
or to
affect the validity of this Agreement, or any part hereof, or the right of
any
party thereafter to enforce each and every such provision in accordance with
the
terms of this Agreement. Each payment provision of this Agreement shall survive
the termination of this Agreement for any reason.
Section
8.6.
Limitation
on Assignment; Binding Effect
.
This
Agreement shall not be binding on either Party unless it is executed by a
corporate officer having full power and authority to bind the Party. This
Agreement may not be assigned by either Party (by contract or by operation
of
law) without the prior written consent of the other Party; provided, however,
no
consent shall be required for the merger, consolidation, or other business
reorganization of any party with an entity affiliated with, controlling,
controlled by or under common control with the assigning Party, provided
that
the proposed assignee is not a competitor or an affiliate of a competitor
of the
non-assigning party and so long as the obligations hereunder are assumed
by the
reorganized entity. This Agreement shall be binding upon and inure to the
benefit of the Parties hereto and their respective permitted assigns and
successors.
Section
8.7.
Entire
Agreement
.
All
exhibits referenced in this Agreement and attached hereto are incorporated
herein by this reference. This Agreement and the Confidentiality Agreement
completely set forth the agreements between the parties and fully supersede
all
prior agreements, both written and oral, between the parties with respect
to the
matters set forth herein and in the Confidentiality Agreement. No terms of
any
purchase order, confirmation, invoice, or other document from a party (even
though receipted for or executed on behalf of the other party) that are in
addition to or inconsistent with the terms of this Agreement shall be effective
with respect to the provision of Services hereunder absent the express written
acceptance (other than on such document) signed by an authorized representative
of such other party.
Section
8.8.
Amendments
.
This
Agreement may only be amended or modified by written instrument expressly
referencing this Agreement and executed by both parties.
Section
8.9.
Nature
of Relationship
.
Innotrac
and Client, in the performance of their obligations hereunder, are acting
as
independent contractors. No agency, partnership, joint venture or other
employer-employee relationship, express or implied, is intended or created.
Client and Innotrac are not, by reason of this Agreement, granted any right
or
authority to assume or create any obligation or responsibility, express or
implied, on behalf of or in the name of the other party, or to bind the other
party in any manner. All persons furnished by Innotrac shall be employees
or
agents of Innotrac and shall not be deemed to be employees of Client for
any
purpose whatsoever. Innotrac shall furnish, employ, and have exclusive control
of all persons to be engaged in performing Services under this Agreement
and
shall prescribe and control the means and methods of performing such
Services.
Section
8.10.
Solicitation
of Employees
Both
parties agree, during the term of this Agreement and for a period of one
(1)
year after termination, not to solicit, recruit, or hire, either directly
or
indirectly, any employees of the other party who are directly involved in
the
Service(s) covered by this Agreement without prior written approval from
the
other party.
Section
8.11
Confidentiality
As
a
condition to Innotrac assuming any obligations hereunder, the parties have
executed or shall execute simultaneously with this Agreement, Innotrac’s
standard form of Confidentiality Agreement attached hereto and incorporated
herein as Exhibit C.
Section
8.12.
Attorneys’
Fees
.
In
the
event of any proceeding or action between Innotrac and Client arising under
or
in connection with this Agreement, the prevailing party shall be entitled
to
recover its legal costs and expenses, including reasonable attorneys’ fees, and
reasonable attorneys’ fees incurred in collection or enforcement of any judgment
or award in favor of the prevailing party.
Section
8.13.
No
Grant of Rights
.
Each
party shall have and retain exclusive ownership of all intellectual property
owned by it and nothing contained in this Agreement will be deemed to grant,
either expressly or impliedly, any rights, licenses or interests in or to
any
intellectual property of the other party.
Section
8.14.
Counterparts
.
This
Agreement may be executed in one or more counterparts for the convenience
of the
parties, all of which together shall constitute one and the same
instrument.
Section
8.15
Survival
Any
provision of this Agreement which contemplates performance or observance
subsequent to any termination of this Agreement shall survive termination,
including without limitation, Articles II, III, V, VII, VIII and all Exhibits
hereof.
Section
8.16.
Headings
.
The
headings contained in this Agreement are for reference only and shall not
affect
the interpretation of this Agreement.
IN
WITNESS THEREOF, this Service Agreement is executed by the parties as of
the
date first set forth above.
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INNOTRAC
CORPORATION
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AEROGROW
INTERNATIONAL, INC.
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By:
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/s/
Scott Dorfman
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By:
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/s/
Randy Seffren
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Name:
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Scott
Dorfman
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Name:
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Randy
Seffren
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Title:
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CEO
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Title:
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Chief
Marketing Officer
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EXHIBIT
B
P
RICING
P
ROPOSAL
S
UMMARY
Innotrac
is pleased to furnish pricing to AeroGrow International. The following
assumptions apply:
Innotrac
will begin implementation the second half of October with a launch date for
the
test group only of November 2005.
All
pricing is based upon the program assumptions and characteristics provided
to
Innotrac by AeroGrow International.
Program
Assumptions:
Number
of
SKUs
Dimensions
and weights
Expected
shipment volume
Shipment
options: we will offer both standard and expedited shippingSpecial storage
and
handling requirements
Basic
requirements:
AG
order
number
Recipient
name and address
SKU(s)
and quantities
Shipping
priority (shipping priority rules will be set by AG in advance)
Pull
one
or two seed kits per the customer order, on a FIFO basis
Make
the
Piggy Back Seed kit box and ship the seed kit(s) with the base product. The
Kitchen Garden box and Piggy Back Seed box will be strapped together for
shipment or combined into one outer box, which ever is the most cost effective.
Scan
the
barcode lot numbers and item numbers of each shipment package at shipment
time
and associate them with the order number. Each package will have a) one label
with 2 bar codes (lot number and SKU number) for the Kitchen Garden, and
b) one
or two labels for included seed kits, each label containing a lot number
and a
SKU number.
AG
order
number
Scanned
SKU number(s)
Scanned
lot number(s)
Date
shipped
Shipped-via
Tracking
number, if applicable
(We
may
also ask for confirmation of the ship-to name and address)
No
data
or order history is required to convert. This is a new program.
The
project will first launch their product via DRTV in November of 2005.
Program
Partners: Must be a provider already integrated with Innotrac.
Telemarketer
- __________
Credit
Card Processor - ___________
Media
-
_____________
Fulfillment
and customer care will be provided from Innotrac’s Reno, Nevada
facility.
Client
will provide Innotrac will expected media spend two weeks in
advance.
The
Service Level Goals herein shall be effective between the parties commencing
90
days after go live. All service levels will be measured over a two week
period.
Innotrac’s
obligation to meet Service Level Goals is dependent upon Client’s actual volumes
being within allowances as defined in Section 3.4 Forecasts of the Agreement.
Service
levels may also be dictated by carrier holidays and/or pick-up and delivery
schedules.
Business
Day is defined as Monday through Friday excluding the day in which the following
Holiday’s are recognized. Christmas, New Years Day, Memorial Day, Independence
Day, Labor Day and Thanksgiving.
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·
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All
complete error free orders will be shipped within two business
days of
receipt.
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·
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All
returns will be processed within two business days of
receipt.
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·
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All
inbound product will be processed within one business day of
receipt.
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·
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A
4
week freight deposit is required if using Innotrac carrier
accounts.
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The
below
pricing proposal is not final and/or complete until such time that all business
rules, actual product and program requirements are confirmed between Innotrac
and AeroGrow International.
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S
TART-
U
P
F
EE
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Start-up
Fee- Standard
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$2,500
*
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*
this includes standard Innotrac systems offering. Enhancements
will be
done in a phased approach to be agreed upon by AeroGrow
and
Innotrac.
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Shopping
Cart
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TBD
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M
ONTHLY
M
INIMUM
(
B
EGINNING
T
HREE
M
ONTHS
A
FTER
G
O
L
IVE)
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Monthly
Minimum
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$2,500
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O
RDER
P
ROCESSING
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Electronic
Order Receipt
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$.08/order
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Order
Processing Fee
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$.08/order
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Continuity
Order Release
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$.08/order
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Credit
Card Processing
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$.07/touchpoint
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·
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Touchpoint
is a authorization attempt, debit attempt, etc.
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Mail/Fax
Orders Entry in CRMS
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$1.25/order
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Check
Deposit
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$.35
/check
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Auto
email Notification (shipment &order confirmation)
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$.05
/email
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Order
Cancellation
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$.19/order
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F
ULFILLMENT
F
EES
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Product
Receipts
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$25.00
per labor hour
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Base
AeroGrow Order*
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$1.05/shipment
of 1
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First
Additional Seed Kit *
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$.18/unit
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·
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*(Including
making box and combining with base order)
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Second
and Beyond Seed Kit inserted into Same Box
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$.18/unit
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Continuity
Seed Kit
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$.85/shipment
of 1
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Package
Inserts- Generic
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$.05
/insert
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Returns
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$1.35/returned
unit*
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·
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*Processing
of returns and appropriate disposition of product
–
Product
refurbishment and all other re-stocking services will be
performed on an
hourly basis
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Fulfillment
Center Project Work
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$25.00/labor
hour
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·
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Projects
charged at this rate include inspection of returned product
for
functionality, re-boxing / refurbishing of returned product,
preparation
of returned product to be sent to manufacturer or trash
disposal, client
requested physical inventory counts or other client requested
projects
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Pallet
Storage
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$8.00/pallet/month
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Bin
Storage
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$2.45/bin/month
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Climate
Controlled for Seed Kits
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TBD
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Packaging
Materials and Supplies
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Cost
plus 10%
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·
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Includes
items such as boxes, bags, dunnage, pack slips,
etc.
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Retail
Distribution- Work Orders
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$25.00/labor
hour
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New
SKU Set-Up
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$3.50/SKU
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C
USTOMER
S
ERVICE
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Per
Minute Fee (talk time)
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$.69
/minute
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Call
Disposition
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$.69/minute
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·
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(if
client requests posting to customer record after the call
ends)
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Toll
Charge
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$.03
/minute
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·
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Includes
toll charge and T-1 usage fee’s
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Outbound
Calls
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$28.00/labor
hour
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·
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Includes
labor, toll charge and T-1 usage fee’s
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Form
Letters (includes postage)
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$.74
/ letter
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Customer
Service Support
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$25.00
/labor hour
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·
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Includes
chargebacks, email, customer service white mail, customer
call backs,
customer service correspondence, etc.
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Agent
Training
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$22.00
/labor hour
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·
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Includes
initial and ongoing training on products
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Curriculum
Development
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$55.00
/labor hour
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I
NFORMATION
T
ECHNOLOGY
/
O
RDER
P
ROCESSING
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On-Line
Reporting (3 concurrent users)
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waived
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Reporting
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$85
/ labor hour
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Information
Technology Projects (client requested projects)
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$125
/labor hour
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M
ISCELLANEOUS
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Client
Services / Account Management
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See
Below
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·
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Fulfillment
pricing includes 4 hours per week of account management
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Additional
hourly support
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$39.00
/labor hour
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Travel
and Out of Pocket Expense
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At
Cost
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Special
Projects
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$25.00/labor
hour
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Overtime
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$37.50/labor
hour
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P
OSTAGE
/F
REIGHT
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PO
Box Rental
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At
Published Rates
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USPS
First Class Postage
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At
Published Rates
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Freight
(if Innotrac Shipping Account)
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4
Week Deposit
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O
THER
P
RICING
&
A
SSUMPTIONS
|
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Services
not specifically addressed above can be quoted upon
request.
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M
ISCELLANEOUS
|
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Travel
& Out of Pocket Expense
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At
Cost
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EXHIBIT
10.13
Letter
of Agreement
This
will
suffice to cover our major points of agreement. Please have Mike transfer
these
agreement points to your standard lease:
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·
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This
rental agreement, dated September 30, 2005, is between AeroGrow
International as tenant and Ken Dubach as landlord.
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·
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Aerogrow
International will rent Ken Dubach's suite #38 at: 2885 E. Aurora
Ave.
Boulder, CO 80303
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·
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$700.00
rent based on a month to month lease
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·
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No
security deposit (as agreed due to previous tenancy)
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·
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Rent
to begin one week from 10-3-2005
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·
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30
days notice to vacate to be given by either party
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·
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Landlord
may show unit with 24 hours notice
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·
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Landlord
to pay taxes and insurance
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·
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Aerogrow
can begin basic repair of unit to include paint and minor repairs
not to
exceed $1000.00 for handyman fee of $25.00 per hour plus expenses,
to be
reimbursed by landlord within 15 days of submission of
bill
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Signed
Kenneth F. Dubach, Date 09-30-05
Signed
Frederic Wiedemann, Date 09-30-05
EXHIBIT
10.14
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From:
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Michael
Bissonnette
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Subject:
|
New
Consulting Agreement Effective
5/16/05
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Dear
Jerry,
I
am
pleased to extend our consulting agreement with AeroGrow International, Inc.
under the following terms:
You
will
continue as its Chief Financial Officer, Secretary and Director to be effective
May 16, 2005.
Your
compensation will be at the rate of $100 per hour and 100 shares of AeroGrow
International, Inc. common stock for every hour or part of an hour
worked.
You
will
be guaranteed a monthly retainer of $5,000, part of which will be deferred
as
follows:
You
will
be paid in cash at the rate of $75 per hour and $25 per hour will be deferred
until the private placement has been completed. At that time, the total amount
of the deferred compensation will be paid in full with no future deferral.
If
your hours worked are less than 28 per month, a minimum payment of $2,800
will
be paid in cash and $2,200 will be deferred.
You
will
come to Boulder on an as needed basis to perform the functions of Chief
Financial Officer and Director.
I
look
forward to a long and mutually rewarding working relationship
together.
EXHIBIT
10.15
MANUFACTURING
AGREEMENT
THIS
AGREEMENT made the 30th day of September, Two Thousand and Five
BETWEEN
|
(1)
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Mingkeda
Industries CO., LTD., Mingkeda Building #1825 Renmin e. Road, Heshan
City,
GuangDong, PRC and its affiliates and partner corporations in China
and
Hong Kong (hereinafter called "MKD");
and
|
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(2)
|
Source
Plus, Inc. of 1121 Greenwood Crossings Ct. Suite 101 Bessemer,
AL 35022
(hereinafter called "SP"); and
|
|
(3)
|
AeroGrow
International, Inc. of 900 28th Street, Suite 201, Boulder, CO
80303
(hereinafter called "AeroGrow").
|
MKD,
SP
and AeroGrow are hereinafter collectively referred to as the "Parties" and
individually referred to as "Party".
WHEREAS:
|
(A)
|
AeroGrow
is a company duly incorporated under the Laws of the United States
of
America with plans for listing on a United States stock exchange,
and owns
the intellectual proprietary rights in the invention and/or design
of an
aeroponic growing device and accessory and lamp components, known
as the
"AeroGrow Kitchen Garden" and seed kit components ("the Product").
The
Product is more particularly depicted in the design drawings and
specifications annexed to this Agreement as Attachment A which
includes
the specific components and raw materials that must be included
in the
Product.
|
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(B)
|
MKD,
and its affiliate factory, YueQing, a company located in China
and Hong
Kong, is engaged in the business of manufacturing and assembling
products
for sale on a contract basis. AeroGrow desires to contract with
MKD for
the building of the Tooling required to manufacture the Product,
and then
to have MKD manufacture/assemble the Product at an agreed cost,
to agreed
quality standards in quantities and on a schedule to be provided
by
AeroGrow. In turn MKD desires to contract with AeroGrow to provide
such
services.
|
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(C)
|
SP
is a United States corporation engaged in the sourcing of products
for
companies. At the behest of AeroGrow, SP has identified MKD as
a factory
capable of building the Tooling for, and then manufacturing the
Product.
SP has also agreed to advance payment to MKD for all or a portion
of such
Tooling, and perform other designated services on behalf of
AeroGrow.
|
NOW
IT IS
HEREBY AGREED between the parties hereto as follows:
|
1
|
Making of the Tooling/Molds/Production Line/Test
Equipment
|
|
1.01
|
SP
will contract with MKD on behalf of AeroGrow to have MKD construct
a set
of steel tooling / molds for the molding and shaping of all the
component
parts of the Product ("the Tooling") as reflected in Attachment
A from
drawings and specifications provided by AeroGrow. The Tooling shall
be
designed to sustain a production capacity of up to 30,000 B units
per
month, and a life expectancy of up to 500,000 molding cycles. If
any
portion of the injection molding Tooling requires replacement prior
to
completion of 500,000 molding cycles, MKD will replace that portion
of the
Tooling without cost to AeroGrow.
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1.02
|
MKD's
price for making each item of Tooling shall be confirmed in writing
by
MKD, and approved in writing by AeroGrow, prior to starting production
of
that item of Tooling. In case of any changes in the Product's
specification made by AeroGrow from time to time, MKD and SP shall
submit
a revised Tooling cost to AeroGrow for its approval. Upon receipt
of
AeroGrow's written approval of the revised cost, MKD shall proceed
to make
the necessary tooling modifications. AG shall employ its best efforts
to
inform SP of tooling changes and modifications in a timely
manner.
|
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1.03
|
The
Tooling is commissioned by AeroGrow, and AeroGrow will be the owner
of the
same subject to SP's right of lien. SP will pay MKD for the Tooling
on
behalf of AeroGrow in the manner hereafter
mentioned.
|
|
1.04
|
MKD
will ensure that the Tooling meets AeroGrow's specifications. In
the event
that Products do not meet specifications based upon faulty Tooling,
MKD
will revise the Tooling at MKD's cost and bear all costs associated
with
replacing defective Products. In the event product does not meet
specifications due to incorrect written direction provided by AeroGrow,
AeroGrow will be responsible for payment related to any tooling
modifications required.
|
|
1.05
|
SP
shall pay MKD for the cost of the Tooling and Molds on behalf of
AeroGrow,
up to a maximum of USD155,000. Payment by SP to MKD will be made
on the
following schedule: SP will pay 50% of the total Tooling cost to
MKD with
the placement of the initial order for the Tooling, and the balance
upon
approval of the Tooling by AeroGrow's employees or designated
agents.
|
|
1.06
|
Tooling
costs in excess of USD155,000 will be paid to MKD on the same schedule
as
set forth above in Section 1.05 by either AeroGrow, or by SP on
behalf of
AeroGrow, pursuant to the terms of Section
1.07.
|
AeroGrow
will pay SP for the Tooling upon approval of the Tooling by AeroGrow's employees
or designated agents. Payment will be made in the form of shares or stocks
of
AeroGrow ("Shares"). AeroGrow undertakes to SP that the Shares will be offered
on a United States Stock Exchange for a price of not less than USD1.00 per
share
at the time of its Initial Public Offering. AeroGrow shall pay SP for SP's
portion of the Tooling by issuing, transferring or allotting (at the sole
cost
and expense of AeroGrow) a quantity of the Shares to SP at the agreed valuation
of USD0.50 per share, so that the quantity of the Shares thereby issued,
allotted or transferred to SP will be equivalent to the cost divided by an
unit
sum of USD0.50. For example, 310,000 Shares at the currently projected Initial
Public Offering value of USD1.00 each will be issued, allotted or transferred
to
SP in the event of SP's portion of the cost being finalized at USD155,000.00.
Both the number of Shares and the Purchase Price shall be adjusted to reflect
any stock split, combination or similar change in the capitalization of AeroGrow
after January 25, 2005. Further, disposition, transfer-ability, and sale
of the
Shares shall be governed by any and all conditions regulating share ownership.
The Shares represented herein cannot be sold, transferred or otherwise disposed
of by the holder unless such transaction is registered under the Securities
Act
of 1933, as amended, and under applicable laws of the state or jurisdiction
where such transaction occurs, or unless such transaction shall qualify under
an
allowed exemption to such registration. SP may sell up to twenty-five (25%)
of
the shares represented in the public market six (6) months from the date
of
AeroGrow's initial public offering is concluded; twenty-five (25%) of the
shares
twelve (12) months from the date of AeroGrow's initial public offering is
concluded; and twenty-five (25%) of the shares eighteen (18) months from
the
date of AeroGrow's initial public offering. Any and all of the remaining
half of
such shares may be sold in the public market twenty-four months (24) from
the
conclusion of AeroGrow's initial public offering.
|
1.07
|
Should
there be further Tooling needs over and above the making of the
initial
Tooling and/or should the cost for the initial Tooling exceed USD155,000,
and should SP elect to advance payment to MKD for such further
Tooling, SP
will make payment directly to MKD on behalf of AeroGrow. AeroGrow
shall in
turn pay SP for the additional cost of such further Tooling at
AeroGrow's
option by either cash or the issue, allotment or transfer of Shares
in the
same manner mentioned above, and AeroGrow guarantees that the conversion
rate of USD1.00 Share to every USD0.50 in the cost, adjusted to
reflect
any stock split, combination or similar change in the capitalization
of
AeroGrow, will be maintained if such further Tooling is ordered
within six
months from the approval for production of the initial set of
Tooling.
|
|
1.08
|
For
purposes of this Agreement, "SP Tooling Stock" shall mean all shares
issued by AeroGrow to SP in payment of Tooling, including further
Tooling
as described in Section 1.07 above. "SP Tooling Outlay" shall mean
the
total amount paid by SP to MKD for the Tooling, including further
Tooling
as described in Section 1.07 above. If the envisaged Initial Public
Offering listing of the Shares in the United States of America
shall fall
to materialize for whatever reason prior to June 1, 2006, SP shall
have an
option to require AeroGrow to pay for the Tooling in full in a
monetary
sum. Such option must be exercised by notice in writing from SP.
On the
receipt of such notice, AeroGrow shall forthwith pay to SP an amount
equal
to the Tooling Outlay, and subject to such actual payment, AeroGrow
shall
be released from its obligation to issue, transfer or allot SP
Tooling
Stock. On receipt of the monetary payment so described from AeroGrow,
SP
shall immediately return to AeroGrow all SP Tooling
Stock.
|
|
1.09
|
For
purposes of this Agreement, "SP Tooling Stock Valuation" shall
mean the
post-IPO value of the SP Tooling Stock, as indicated by the 20-day
moving
average of the closing price. If the envisaged IPO occurs prior
to June 1,
2006, but the SP Tooling Stock Valuation is less than the SP Tooling
Outlay as of the one-year anniversary of the IPO, then AeroGrow
shall make
a cash payment to SP equal to the difference between a) the SP
Tooling
Outlay and b) SP Tooling Stock Valuation as of the one-year anniversary
of
the IPO, plus 5% per annum simple interest. The interest will be
calculated from the date of the first Tooling Outlay payment made
by SP to
the date of the AeroGrow cash payment, and will be applied only
to the
difference described above, not the entire amount of the Tooling
Outlay.
Said amount shall be paid 60 days after the one-year anniversary
of the
IPO.
|
|
1.10
|
AeroGrow's
non-exclusive license to MKD is only to make use of the Tooling
to
manufacture the Product solely for sale to AeroGrow as specified
in
AeroGrow's Purchase Orders, and no royalty or other payment will
be
payable by MKD to AeroGrow for such use and application of the
Tooling.
This license will last only for the term of the Agreement and only
for the
manufacture of the Products at MKD's facility, and AeroGrow's Tooling,
Tooling drawings, and technology will not be used in any other
way or
transferred to any other party. The Tooling is subject to SP's
lien as
detailed in section 1.03.
|
|
1.11
|
MKD
agrees to maintain all the Tooling and Molds in good working order
(following the AeroGrow Tooling Maintenance Specifications which
are
attached) and carry appropriate insurance against loss or theft.
AeroGrow
agrees to reimburse MKD for premiums that are mutually agreed upon
in
advance. Should MKD or AeroGrow terminate their relationship for
any
reason, and if SP has received payment in full as described in
section
1.08, MKD agrees to properly pack and ship the Tooling to a location
designated by AeroGrow within 30 days following the receipt of
such notice
by AeroGrow subject to payment terms and schedule dates noted in
subsequent clauses, including 9.06. Should payment for the Tooling
be due
from AeroGrow to SP, then AeroGrow will immediately make such payment
to
SP. The cost of packing and shipping the Tooling will be borne
by
AeroGrow. MKD shall confirm with SP that AeroGrow has paid in full
to pack
and ship the Tooling. SP and MKD may not retain any Tooling or
Tooling
drawings for their benefit. Tooling drawings and all Product
specifications are the confidential property of
AeroGrow.
|
|
1.12
|
MKD
and SP acknowledge AeroGrow as the sole owner of all the Tooling,
Valve
Gates, Specific Heat Zone Controls, and Hot Manifolds upon the
issue,
allotment or transfer of the SP Tooling
Stock.
|
AeroGrow
may, at its sole option, remove all or any portion of the Tooling from MKD
for
reasons including but not limited to the following:
|
|
•
|
If
MKD chooses to decline Purchase Orders which would require acquisition
of
additional plastic injection molding
presses.
|
|
|
•
|
If
MKD changes its lead time requirement, or if MKD repeatedly fails
to meet
its ship date commitments.
|
|
|
•
|
If
AeroGrow selects an alternate plastic molding vendor with existing
plastic
molding capacity, instead of requiring MKD to add plastic molding
capacity.
|
|
|
•
|
If
MKD fails to meet AeroGrow's quality requirements for plastic components
as specified in Attachment B.
|
|
|
•
|
If
MKD chooses not to install molding press features, modifications,
or
ancillary equipment that AeroGrow believes is required for Product
aesthetics or functionality.
|
|
|
•
|
While
MKD is increasing molding capacity to meet AeroGrow's requirements,
and
before such molding capacity is actually available for production.
In this
case AeroGrow will return the Tooling to MKD as soon as possible
after
such molding capacity and quality is actually available for
production.
|
|
|
•
|
If
MKD pricing is not competitive with other available
sources.
|
It
is
AeroGrow's intent, but not guarantee, that even if AeroGrow removes all or
any
portion of the Tooling from MKD, MKD will continue to be the primary source
for
light bulb manufacturing, printed circuit board assembly, and assembly and
packaging of the B unit Kitchen Garden.
Before
removing any Tooling AeroGrow must pay all outstanding costs associated with
the
Tooling to be removed, including but not limited to parts actually run on
the
Tooling to be removed and modification costs incurred by AeroGrow on the
Tooling
to be removed.
Should
AeroGrow totally remove Tooling or production from MKD, AeroGrow will consider,
but not guarantee additional financial incentives or compensation to MKD
for
production development time, and effort.
|
1.13
|
MKD
will absorb all costs for the set-up of the production
lines.
|
|
1.14
|
MKD
will absorb all costs for the test equipment required to ensure
that the
Products meet the agreed-upon QA/QC Specification based on Attachment
B.
Should costs for test equipment exceed $2,000 USD then AeroGrow
will
provide MKD with direct payment for AeroGrow specified test equipment,
and
MKD will credit AeroGrow with the identical amount towards the
first
shipment of product. Ownership of such test equipment will remain
with
MKD, upon completion of the first purchase order transaction. AeroGrow
must approve of all test equipment and corresponding costs for
said
equipment in advance of purchase.
|
|
2
|
Pricing
of the Products/Cost Reductions
|
|
2.01
|
MKD
will produce the Products for sale to AeroGrow pursuant to and
on the
receipt of written Purchase Orders. For a period of 120 days beginning
with the issuance of the first Purchase Order, AeroGrow will issue
Purchase Orders to SP, and SP in turn will issue Purchase Orders
to MKD to
manufacture the Product in the same quantities, on the same schedule,
and
at the same cost as specified in AeroGrow's Purchase Orders to
SP. When
AeroGrow issues Purchase Orders through SP, SP will issue a corresponding
Purchase Order to MKD within two (2) working days of receipt of
AeroGrow's
Purchase Order. SP will provide a copy of such Purchase Order to
AeroGrow
at the time of issuance. In the event such copy is not received
within two
(2) working days, AeroGrow may, at its option, thereafter place
Purchase
Orders directly to MKD. After 120 days from the issuance of the
first
Purchase Order, AeroGrow at its sole option may elect to issue
Purchase
Orders directly to MKD. In this event, AeroGrow will provide copies
of
such Purchase Orders to SP at the same time the Purchase Orders
are issued
to MKD.
|
|
2.02
|
Attachment
A to this document includes the Bills of Material (BOMs) and itemized
component costs for the Product to be sold by MKD to AeroGrow under
this
Agreement. "Base Price" is explicitly detailed as a column on the
BOMs
with a minimum order per PO of the quantity of Product required
to fill
two (2) standard forty-foot (40') containers. It is agreed between
the
parties that any changes to any items in the Bills of Material
must
receive the expressed written consent of AeroGrow, and further
that the
vendor and specifications of each outsourced item must be approved
by
AeroGrow prior to use in manufacturing AeroGrow
Products.
|
|
2.03
|
The
Base Prices of the B unit and seed kit components quoted in Attachment
A
will be subject to upward or downward adjustments to reflect changes
in
the cost of purchased materials and components. Base Price adjustments
shall be limited to changes due to three factors: 1) market-price
fluctuations in the cost of purchased materials and components,
2) design
changes made by AeroGrow relative to the specifications contained
in
Attachment A, and 3) correction of legitimate errors and omissions.
Adjustments shall be priced at MKD's actual cost of materials and
direct
labor
|
MKD
shall
advise AeroGrow of all material cost adjustments as they occur, with an itemized
explanation of each adjustment. Any price increase in raw materials must
be
substantiated with written quotes or invoices from at least three vendors.
Each
AeroGrow purchase order will be issued at the most recently advised and accepted
price. In no event shall price adjustments apply to Product after MKD receives
(a) Letter(s) of Credit for the full price of such Product.
In
the
event that the adjustment described above exceeds plus or minus five percent
(5.0%) between consecutive Purchase Orders, then MKD must indicate in writing
a
full description of said increase and said increase must be agreed to in
writing
by AeroGrow. AeroGrow, MKD or SP, also known as the Parties, shall have the
right to terminate this Agreement on 180 days written notice to the other
Parties, subject to all of the requirements elsewhere in this Agreement
including section 9.05, should one Party find it not sufficiently profitable
to
proceed due to cost increases.
MKD
pricing is based upon a 29% mark-up on cost of materials and labor for most
materials and components except light bulbs which are calculated at a 14%
mark-up. MKD will provide additional financial incentives including a .50
discount for the B Unit which is reflected in the net selling price found
in the
BOM.
|
2.04
|
The
Base Price in effect at the time of each Purchase Order will be
subject to
upward or downward adjustments to reflect fluctuations in the exchange
rate between the US Dollar (USD) and Yuan or Renminbi (RMB). The
Base
Exchange Rate will be RMB8.28 per USD 1.00. Price adjustments due
to
exchange rate fluctuations will be made in the exact proportion
of the
Base Exchange Rate with respect to the exchange rate as of the
At Sight LC
issuance date. The exchange rate as of the At Sight LC issuance
date shall
be the People's Bank of China Buy rate for
Checks.
|
|
2.05
|
MKD
hereby grants AeroGrow the right to conduct on-site audits of MKD's
costs
for manufacturing the Product, which includes component and assembly
costs. Such audit must be scheduled by AeroGrow at least fourteen
(14)
days in advance of the scheduled audit date via written notification
to
MKD. Such audit will be restricted to AeroGrow
production.
|
|
2.06
|
MKD
will maintain accurate records regarding the manufacturing of the
Products, inspection results from each receiving and manufacturing
lot,
and other production data that will insure a complete record of
MKD's
production of AeroGrow products.
|
|
3
|
Payment for the Products
|
|
3.01
|
AeroGrow,
SP and MKD have agreed on QA/QC Specifications which are attached
to this
Agreement as Attachment B. Specifications detailed in Attachment
B are
subject to revision based upon mutual
agreement.
|
|
3.02
|
All
shipments will be paid in full in the manner described in Section
3.03
unless AeroGrow has provided written notification to MKD and SP
that the
Product, or a portion of the Product, has failed to meet the
specifications to be described in Attachment B by an authorized
AG
inspection agent at least twenty four (24) hours prior to
shipment.
|
|
3.03
|
AeroGrow
shall pay MKD on the following schedule via wire transfers. 30%
of
projected total payment including mark-up less incentives 25 days
prior to
ship date, 50% of total payment less incentives plus exchange rate
adjustment on ship date after AeroGrow receives documentation from
the
freight forwarder that Products are on-board, and the remaining
balance
20% 30 days after ship date. The actual Product price for each
order will
be set with exchange rate adjustment as of the on-board
date.
|
MKD
will
order, receive, inspect, and safely store all purchased components and
materials, regardless of markup percentage received, in addition to resolving
quality and delivery issues with respect the vendors of the prepaid goods
for no
additional cost.
|
3.04
|
MKD
and SP will work with AeroGrow to provide an unsecured line of
credit
after a positive pattern of payment has been established between
the
parties.
|
|
3.05
|
In
return for the .50 cent price concession applied for the B unit
contained
in this Agreement, AeroGrow will grant MKD, at no cost, 50,000
shares of
AeroGrow stock valued at US$50,000, as of January 25, 2005. The
number of
shares will be based on a value of US$1.00 per share (as of January
25,
2005), with adjustment up or down to reflect any stock split or
change in
market value. The first 50,000 shares shall be issued with the
first PO.
This stock will be subject to the same restrictions as reflected
in the
AeroGrow/SP grant found in Paragraph
1.06.
|
|
4
|
Services Provided by SP to AeroGrow/Payments to
SP
|
|
4.01
|
SP
shall provide all of the services to AeroGrow enumerated in Attachment
C.
AeroGrow will pay for all AeroGrow pre-approved direct travel expenses
incurred by SP (Shenzhen Office Employees only) as a result of
a specific
request for SP support at Chinese factories. AeroGrow will pay
SP invoices
for travel expenses within 30 days of invoice
receipt.
|
|
4.02
|
For
the services provided by SP, AeroGrow will pay to SP two percent
(2%) of
the total amount paid for the Product, due and payable on the date
on
which payment for the Product is paid by AeroGrow to either MKD
or SP. No
payments will be made by MKD to SP in connection with the manufacturing
of
the Product.
|
|
4.03
|
Should
any payments be made by MKD to SP in connection with the manufacturing
of
the Products, this Agreement will be considered to be breached
as of the
date of the earliest of such payments. In the event of such breach,
SP
shall forfeit all rights to compensation from AeroGrow after the
date of
the breach, and SP shall immediately pay to AeroGrow any and all
funds
received from MKD. Additionally, the Non-Circumvention Agreement
between
AeroGrow and SP dated July 27, 2004 will immediately become null
and
void.
|
|
4.04
|
Should
SP fail to provide the services enumerated in Attachment C, and
such
failure is not cured within 60 days after the receipt of written
notice
from AeroGrow, this Agreement will be considered to be breached.
Written
notice from AeroGrow will describe the services SP has failed to
provide.
In the event of such breach, SP will not be entitled to any future
compensation from AeroGrow. Additionally, the Non-Circumvention
Agreement
between AeroGrow and SP dated July 27, 2004 will immediately become
null
and void.
|
|
4.05
|
SP
is designated as AeroGrow's exclusive agent for the AeroGrow Kitchen
Garden Product Line (A, B, or Subsequent Units) for 18 months after
the
first shipment of Product, as long as the Agreement is not considered
breached under Sections 4.03 or 4.04. As AeroGrow's exclusive agent,
SP is
charged with identifying additional factory(ies) capable of producing
the
Product. This Agreement shall apply to additional factories introduced
by
SP and used by AeroGrow, and the same percentage fee and SP services
described herein shall apply.
|
|
5
|
Ordering
of Raw Materials, Products / Cancellation of Liability /
Shipments
|
|
5.01
|
MKD
guarantees to AeroGrow and SP that it can develop sufficient capacity
to
manufacture at least 100,000 units per month, subject only to limitations
imposed by the available Tooling. MKD also guarantees that it can
acquire
sufficient molding machines to manufacture 30,000 units per month
per set
of injection molding tooling.
|
|
5.02
|
AeroGrow
will provide MKD and SP with a rolling production forecast by the
5th
business day of each month. MKD and SP acknowledge that the forecast
does
not represent a guarantee of production volumes. Written Purchase
Orders
provided by AeroGrow directly to MKD, or via SP to MKD, will be
the sole
means of authorizing production. Purchase Orders will be issued
at least
forty (40) days prior to the requested On Board date for orders
equal to
or less than factory capacity. Purchase Orders which require MKD
to exceed
capacity and acquire new injection molding presses, will be issued
at
least ninety (90) days prior to the On Board date. Lead times will
be
extended by the length of Chinese national holidays to the extent
that
such holidays fall between Purchase order date and the requested
On-Board
date. MKD will provide a National holiday schedule to AeroGrow
and
SP.
|
|
5.03
|
MKD
will identify all long-lead time components (those requiring the
placing
of orders more than 40 days in advance) and notify AeroGrow of
those
components and, on AeroGrow's written authorization order such
components.
Without AeroGrow's written authorization, long-lead time components
will
not be ordered. Purchase Orders will be the sole method of authorize
MKD
to order raw material, long lead and minimum order components (materials).
Any unused material remaining from a given Purchase Order due to
minimum
order quantities is subject to the inventory carrying charge noted
in
5.07.
|
|
5.04
|
On
receipt of AeroGrow's Purchase Orders, or Purchase Orders placed
by
AeroGrow to MKD via SP, MKD will immediately order and maintain
inventories of the raw materials required to meet the production
schedule
for the Products.
|
|
5.05
|
In
the event AeroGrow cancels a Purchase Order or a portion thereof,
MKD, SP
and AeroGrow agree to the following cancellation
terms:
|
|
|
•
|
Purchase
orders cannot be cancelled within 30 days of ship
date
|
|
|
•
|
If
a purchase order is cancelled, then AeroGrow shall be liable for
all
material costs associated with the purchase order that have been
incurred
by MKD up to the cancellation date, less prepayments by AeroGrow
associated with the purchase order. MKD must provide written documentation
of all material costs associated with a cancelled purchase order.
Payment
for charges due to cancelled purchase orders must be made by AeroGrow
within 30 days of receipt of such written
documentation.
|
|
5.06
|
In
the event AeroGrow requests that shipments for issued Purchase
Orders be
rescheduled beyond the On Board date previously specified in the
Purchase
Order, the Products so inventoried by MKD will be subject to a
one per
cent (1.0%) per month inventory carrying charge. If inventory is
carried
for more than 15 days but less than one month, the carrying charge
will
equal the charge for one full month. If inventory is carried for
less than
15 days, then the charge will be calculated on a pro-rated monthly
basis.
Should shipments be delayed at AeroGrow's request, the monies due
MKD will
be calculated from the target ship date as specified in the Purchase
Order
and not the on board date.
|
|
5.07
|
The
shipment of all Products shall be suitably packed in accordance
with
AeroGrow's specifications, and delivered to a carrier or agent
at a
location designated by AeroGrow. At the time of such delivery,
title for
the Products shall pass to AeroGrow or AeroGrow's designated
agents.
|
|
5.08
|
MKD
is expected to achieve 100% on-time delivery performance, which
is defined
as up to 3 days prior to and up to 7 days beyond the scheduled
delivery
date. If Product is more than 7 days late, and required to meet
AeroGrow's
customer commitments, AeroGrow may require MKD to air ship the
Product to
a location designated by AeroGrow. In such instances, MKD agrees
to pay
the difference between the costs of sea shipment and air freight.
AeroGrow
acknowledges that delays attributable to acts of God, acts of war,
typhoon, fire, labor strikes, power shortages, country-wide material
shortages, and delays caused by AeroGrow's freight forwarder are
out of
MKD's control, and MKD will not be penalized for not achieving
on-time
delivery as noted.
|
|
5.09
|
MKD
hereby agrees that it will not subcontract out any portion of AeroGrow's
manufacture of the Products without AeroGrow's prior express written
permission.
|
|
5.10
|
MKD
will be responsible for sourcing all raw materials and components
to be
used in the building, assembly and shipment of the Products and
ensure
that they are available on a timely basis to meet the date(s) designated
in either SP's or AeroGrow's Purchase
Order(s).
|
|
5.11
|
MKD
will submit a list of raw materials, sourced components and suppliers
to
be used in production of the Products for AeroGrow's written approval,
which approval shall not be unreasonably withheld. Materials, components
and suppliers which are referenced in Attachment A, may not be
substituted
without AeroGrow's prior written approval, which approval shall
not be
unreasonably withheld.
|
|
6
|
Engineering
Changes/Third party Certifications
|
|
6.01
|
AeroGrow
may request in writing that MKD incorporate engineering changes
into the
Product. MKD shall make an evaluation of such requested changes,
and
advise AeroGrow in writing of the feasibility, costs and timing
of
implementation, impact on the delivery schedule, and the pricing
of the
Product. On written approval by AeroGrow, MKD will proceed to implement
the changes. AeroGrow will bear the cost of finished Products and/or
component inventories that are obsoleted by the engineering changes.
Payment for these costs will be due 30 days from their date of
billing by
MKD.
|
|
6.02
|
MKD
will manage the third party certification process such as UL
(Underwriter's Laboratories) on behalf of AeroGrow. AeroGrow will
specify
which third party certifications are desired, and MKD will provide
AeroGrow cost and time estimate to ensure compliance with the
certification process. Upon AeroGrow's approval MKD will begin
the
process. Any third parties involved in the certification process
will
invoice AeroGrow directly.
|
|
7
|
Quality
Assurance/ Test Equipment
|
|
7.01
|
AeroGrow
will, in cooperation with MKD and SP, establish mutually agreeable
QA/QC
Specifications for the Products and for Mold and Tool maintenance
based on
the draft of these specifications that is set forth in Attachment
B and
incorporated as part of this
Agreement.
|
|
7.02
|
MKD
guarantees that the flood deck and grow deck will meet the flatness
specifications enumerated in Attachment B, and will implement processes
to
ensure compliance with the specified tolerances, including but
not limited
to integration of cavity pressure switchover technology, press
upgrades,
upgrade of ABS raw materials to a more stable composition, and
the
incorporation of gas assist technology, as necessary. All components
of
any cavity pressure switchover system(s) shall be paid for by MKD.
MKD and
AeroGrow will work together to find acceptable solutions to meet
product
specification requirements and tolerances. Should gas assist technology
be
required, both MKD and AeroGrow will fund the investment in such
equipment.
|
|
7.03
|
SP
will inspect two percent (2%) of each production run to insure
that the
Product meets the agreed-upon QA/QC Specification based on Attachment
B.
Inspection must be completed no later than 24 hours prior to the
scheduled
ship date, or shipment delays will result. MKD shall not be held
responsible for shipment delays due to late inspection by
SP.
|
|
7.04
|
In
addition to SP's inspection, AeroGrow reserves the right to pre-shipment
inspection for quality control compliance in MKD's facility by
random
sampling. Should AeroGrow decide to place their own agents in MKD's
facility, MKD agrees to accommodate all reasonable requests from
AeroGrow
in this regard so long as advance notice has been provided by AeroGrow
or
it's agents to MKD.
|
|
7.05
|
MKD
will provide a work area for a designated AeroGrow or SP employee
or agent
within the MKD factories at no cost to AeroGrow. The work area
is to be
equipped with a phone, Internet connection, access to a printer,
as well
as a desk and chair. AeroGrow will pay MKD for the cost of the
phone and
Internet connection for any direct expenses incurred by the AeroGrow
personnel.
|
|
8
|
Product
Acceptance and Warranties
|
|
8.01
|
MKD
is expected to deliver quality product in conformance to all Product
specifications, workmanship standards, and the agreed-upon QA/QC
Specification based on Attachment B. MKD is expected to institute
appropriate quality controls at its factory to prevent the shipment
of any
defective Product to AeroGrow or its designee. In the addition
to the
previously stated right to sample and approve each production lot
at MKD's
factory prior to shipment, AeroGrow reserves the right to audit
MKD's
facilities, conduct source inspections, and/or inspect Product
at MKD's
factory, and distribution and repair
centers.
|
|
8.02
|
While
AeroGrow may have sampled and approved each production lot in MKD's
factory prior to shipment, it is possible that workmanship defects
may
subsequently be discovered. In the event that such defects result
from
poor workmanship and not product design, than AeroGrow may return
the
defective Products to MKD and MKD shall be liable for any and all
direct
costs and liabilities incurred by
AeroGrow.
|
|
8.03
|
MKD
warrants that the Product will conform to Attachment A (Bill of
Materials)
and Attachment B (QA/QC Spec), and will be free from defects in
workmanship. MKD and AeroGrow will agree on a "model product" to
be used
as a standard to which the Product manufactured by MKD must aesthetically
and functionally conform.
|
For
purposes of this agreement, all Product that does not conform to the "model
product" or warranties described above will be referred to as "Non-conforming
Product".
|
|
"Non-conforming"
Product includes:
|
|
|
•
|
Assembly
errors,
|
|
|
•
|
Improper
fit due to parts out of tolerance as defined by the QA
standards,
|
|
|
•
|
Missing
parts,
|
|
|
•
|
Improper
substitution of parts,
|
|
|
•
|
Improper
packing resulting in visibly damaged or marred parts
|
|
|
•
|
Contaminated
parts during assembly,
|
|
|
•
|
Improper
soldering of components or wiring,
|
|
|
•
|
Improper
application of decorative labels or parts, and
|
|
|
•
|
Excess
flux remaining on the PCBA causing corrosion
|
|
|
•
|
Leads
not trimmed short enough on the PCBA
|
|
|
•
|
Failure
to fully test microprocessors after packaging into DIP
packages
|
|
|
•
|
DIP
packaging or wire bonding errors
|
|
|
•
|
Static
damage to parts
|
|
|
•
|
Variations
in translucence of ABS
|
|
|
•
|
Variation
in ABS color from color ordered and from part to part as defined
by a
visual test performed against the model product by an AeroGrow
approved
inspector
|
|
|
•
|
Excess
flash on plastic parts
|
|
|
•
|
Texture
mismatch due to uneven texture wear in molds
|
|
|
•
|
Residues
or contaminants from improper handling, cleaning, mold release
etc.
|
|
|
•
|
Soiled,
marked or otherwise contaminated components from poor handling
conditions
or storage
|
|
|
•
|
Items
added to box or components that should not be there such as
internal
documents, labels or stickers
|
|
|
•
|
parts
damaged by manufacturing or handling process
|
|
|
•
|
Using
parts from non-approved vendor
|
|
|
•
|
Assembly
shortcuts like not using enough screws, especially where not
visible
|
|
|
•
|
Building
or using down-level parts or assemblies
|
|
|
•
|
PCB
testing to wrong specs
|
|
|
•
|
Defects
in chrome plating, products that match the model product are
considered
conforming
|
|
|
•
|
Wrong
bulbs
|
|
|
•
|
Failure
to execute proper final system test
|
|
|
•
|
Failure
to install new battery with pull tab
|
|
|
•
|
Excess
solder
|
|
|
•
|
MCU
not fully seated in socket
|
|
|
•
|
Improper
wire routing or lack of service loop
|
|
|
|
|
|
|
AeroGrow
may add additional non-conforming items overtime, but any new
additions
will only apply to subsequent orders.
|
|
|
|
|
|
|
MKD's
warranty does not apply to:
|
|
|
•
|
Product
which precisely conforms to Attachment A (Bill of
Materials)
|
|
|
•
|
Product
which precisely conforms to AeroGrow's 2-dimensional or 3-dimensional
drawings
|
|
|
•
|
Product
which precisely conforms to Attachment B (QA/QC Spec)
|
|
|
•
|
Product
which precisely conforms to the agreed-upon "model
product"
|
|
|
•
|
Abuse
from incorrect use of the product,
|
|
|
•
|
Damage
resulting from shipping abuse,
|
|
|
•
|
Abuse
from incorrect cleaning solutions or solvents,
|
|
|
•
|
Discoloration
and degradation of AeroGrow-specified materials caused by
exposure to
sunlight or artificial light
|
|
|
•
|
Surface
marking or discoloration from abrasives or sharp
instruments,
|
|
|
•
|
Damage
resulting from impacts that exceed the impact strength of
AeroGrow-specified materials
|
|
|
•
|
Damage
resulting from shipping abuse
|
|
|
•
|
Damage,
marking, or discoloration from any cleaning materials other
than water and
mild soap
|
|
|
•
|
Plants
not growing for any biological reason
|
|
|
•
|
Damage
caused by electrical spikes and surges
|
|
|
•
|
Defects
or malfunction resulting from the design of the Product
|
|
|
•
|
Errors
or omissions in Attachment A or Attachment B
|
|
|
•
|
Misuse
and/or abuse of the
Product.
|
|
8.04
|
MKD
will ship to AeroGrow's customer service center Replacement Part
Assemblies (a) base with circuit board, (b) lampshade/rim, (c)
deck/door/pump tower, (d) pump/pump door, (e) light bulbs, (f)
telescopic
pole) in UPS shippable brown craft boxes with assembly instructions
for
using in repair/replacing Non-conforming Products at no cost to
AeroGrow.
MKD will limit light bulb replacements to 1 % of AeroGrow orders.
MKD will
initially ship to AeroGrow's customer service center Replacement
Assemblies for all other items outside of light bulbs, representing
.5% -
2% of total products ordered. AeroGrow will monitor product defects
and
determine if the .5 - 2% should continue for each order (Purchase
Order)
issued and direct MKD accordingly. AeroGrow will allow MKD to use
any
excess capacity in each container to ship these Replacement Part
Assemblies at no cost, but MKD must still deliver the required
Replacement
Part Assemblies with each order as required even if it requires
dedicated
shipping. AeroGrow will notify MKD of Non-confirming Products in
writing
within seven (7) days of discovery. The discovery period is limited
to the
duration period of maximum
warranty.
|
AeroGrow
may also purchase Replacement Part Assemblies at an agreed upon cost for
use in
assisting customers with products outside of MKD's warranty.
Diagnosis
of returned units or "Non-conforming" Product is the sole responsibility
of
AeroGrow at no cost to MKD.
MKD's
guarantee of material and workmanship product quality and required remedy
will
be limited to the lesser of 1) thirteen (13) months from the On Board date
for
each respective shipment, or 2) six (6) months from the date of warranty
registration by the end user, 3) six (6) months from the purchase date shown
on
a purchase receipt by the end user, if a purchase receipt is available. MKD
shall warrant materials and purchased components but only to the extent that
the
original manufacturer (OEM) warrants the materials and purchased components.
MKD
must fully disclose the length and terms of each manufacturer's warranties
on
materials or parts purchased by MKD.
MKD
or an
MKD authorized agent may inspect Non-conforming product at an AeroGrow customer
service or repair center. AeroGrow will keep records of all repairs and returns
which will be made available to MKD for their review. Defective Product will
be
kept for no more than 30 days for inspection.
|
8.05
|
Repeated
failures by MKD to meet the established Quality Assurance standards
will
constitute a breach of this Agreement, and will be grounds for
its
termination.
|
|
8.06
|
In
the event of a product liability claim, AeroGrow agrees that, if
promptly
notified in writing, and given sole control of the defense and
all related
settlement negotiations, it will hold MKD and SP harmless from
any third
party loss, damage or injury which arises from any alleged defect
of
AeroGrow's design of any Products. MKD agrees that it will similarly
defend and hold AeroGrow and SP harmless from any third party loss,
damage
or injury arising from any workmanship defect of any
products.
|
|
8.07
|
AeroGrow
will provide MKD with the right to review the customer warranty
records
and warranty repair/replacement
log.
|
|
9
|
Term
of the Agreement/ Termination
|
|
9.01
|
The
term of this Agreement shall commence on the date hereof above
and shall
continue for one (1) year thereafter or until terminated as described
in
Sub-clause 9.02. After the expiration of the original term hereunder
(unless this Agreement has been terminated), this Agreement shall
be
automatically renewed for separate but successive one (1) year
terms,
subject to Sub-clause 9.02 below.
|
|
9.02
|
The
Agreement may be terminated by AeroGrow or MKD on 180 days written
notice
to the other.
|
|
9.03
|
The
Agreement may be terminated by SP on 60 days written notice only
if
AeroGrow defaults on payments that are due to SP and such default
is not
cured within 30 days of such written notice being
delivered.
|
|
9.04
|
If
any Party is adjudicated bankrupt, or if a receiver is appointed
for the
any Party or for a substantial portion of its assets, or if an
assignment
for the benefit of creditors of any Party is made, or if any Party
is
dissolved or liquidated or has a petition for dissolution or liquidation
filed which is not dismissed within 45 days, the other Parties
are still
bound by this Agreement.
|
|
9.05
|
Termination
of this Agreement for any reason shall not affect the obligations
of any
Party as described in this Agreement which exist as of the date
of
termination. Clauses 10, 11 and 12 shall survive the termination
of this
Agreement. Should SP or MKD fail to perform under this Agreement,
AeroGrow
will be relieved of all existing obligations to the non-performing
Party
other than those specifically included in this Agreement as described,
but
not limited to, in paragraph 9.06.
|
|
9.06
|
Immediately
upon termination, all MKD work in process will be completed and
following
inspection and approval by an AeroGrow agent, shipped immediately
to
AeroGrow or its designated agents. Any and all raw materials and
components previously authorized and paid for by AeroGrow will,
following
AeroGrow's inspection and approval, be shipped to AeroGrow or its
designated agents upon full payment of all approved parts from
inspection.
|
|
9.07
|
In
the event of termination prior to the time AeroGrow's Shares are
publicly
listed on an exchange in the United States of America, SP shall
have an
option to require AeroGrow to pay for the Tooling in full in a
monetary
sum. Such option shall be exercisable by notice in writing from
SP. On the
receipt of such notice, AeroGrow shall forthwith pay to SP the
full SP
Tooling Outlay and SP shall immediately return to AeroGrow any
SP Tooling
Stock.
|
|
9.08
|
In
the event of termination of this Agreement for any reason after
AeroGrow's
Shares are publicly listed on an exchange in the United States
of America,
but less than 12 months following the date of the IPO, if the SP
Tooling
Stock Valuation is below the SP Tooling Outlay as of the date of
termination, AeroGrow shall on written notification from SP immediately
pay in cash to SP the difference between the SP Tooling Outlay
and the SP
Tooling Stock Valuation as of the termination
date.
|
|
10
|
Patents,
Copyrights, Trade Secrets, and Other Proprietary
Rights
|
|
10.01
|
AeroGrow
owns all the patents (both issued and pending), copyrights, and
trade
secrets related to the Products. AeroGrow's patents are detailed
in
Attachment D. AeroGrow is in the process of preparing other applications
on other inventions not yet described in Attachment D. AeroGrow
will
advise SP and MKD of the additional Serial Numbers as additional
applications are filed.
|
|
10.02
|
AeroGrow
shall defend, indemnify, and hold MKD and SP harmless from any
claim
alleging that MKD's manufacture of the Products under this Agreement
directly infringes any third party's patents, copyrights, or trade
secrets. MKD and SP shall promptly notify AeroGrow in writing of
any such
claims, and give AeroGrow any and all assistance in resolving such
claims.
This indemnity clause does not encompass negligence or other willful
misconduct of the part of the non-prevailing
parties.
|
|
10.03
|
SP,
MKD and AeroGrow acknowledge that during the course of the business
relationship certain product improvements are likely to be developed.
Regardless of the source of these product improvements, SP and
MKD
acknowledge that all product improvements will remain the sole
property of
AeroGrow.
|
|
10.04
|
MKD
will assist AeroGrow in the filing of Chinese patent applications.
Any
expenses in the filing of patents must be pre-approved in writing
by
AeroGrow. All agencies and third parties involved in the filing
process
will invoice AeroGrow directly.
|
|
11.01
|
All
written or otherwise communicated information provided by AeroGrow
to MKD
and SP intended to enable MKD to manufacture and deliver the Product
under
this Agreement, shall be considered Confidential Information. MKD
and SP
agree not to utilize or disclose this Confidential Information
to any
third party, or to use it for any purpose other than that described
in
this Agreement without the prior written consent of
AeroGrow.
|
|
11.02
|
Confidential
Information disclosed by AeroGrow to MKD and SP pursuant to this
Agreement
shall be maintained as confidential for a period of three (3) years
following the termination of this Agreement. Upon termination of
the
Agreement, MKD and SP agrees to return all documents to
AeroGrow.
|
|
12.01
|
This
Agreement constitutes the entire agreement between MKD, SP and
AeroGrow
with respect to the transactions contemplated hereby, and supersedes
all
prior agreements and understandings between the
parties.
|
|
12.02
|
MKD,
SP and AeroGrow shall all hold the terms of this Agreement in confidence,
except for disclosure to each Party's respective financial and
legal
advisors, unless the Party desiring to release the information
obtains the
written consent of the other
Parties.
|
|
12.03
|
This
Agreement maybe amended only by the written consent of all parties
hereto.
|
|
12.04
|
Neither
MKD, SP nor AeroGrow shall be deemed to be an agent of the other
Party,
and all parties acknowledge that the relationship between them
is that of
independent contractors. As such, neither MKD, SP nor AeroGrow
has any
right to assume or create any obligations on the part of the other
or make
any representations or warranties to any third party on behalf
of any of
the others.
|
|
12.05
|
In
the event a dispute between the parties hereunder with respect
to this
Agreement must be resolved by litigation or other proceeding, the
prevailing Party shall be entitled to receive reimbursement for
all
reasonable attorneys' fees from the non-prevailing
Party.
|
|
12.06
|
This
Agreement shall be governed by and construed under the laws of
the State
of Colorado. All parties consent to the exclusive jurisdiction
of the
state and federal courts in Denver County,
Colorado.
|
|
12.07
|
This
Agreement shall be binding on and inure to the benefit of the parties
hereto and their respective successors, and assignees. Neither
MKD, SP nor
AeroGrow shall have the right to assign or otherwise transfer its
rights
or obligations under this Agreement except with the prior written
consent
of all other parties, which is not to be unreasonably
withheld.
|
|
12.08
|
MKD
agrees to comply with environmental laws, laws concerning export
control,
and laws relating to the registration of this
Agreement.
|
|
12.09
|
In
the event that MKD, SP, or AeroGrow is prevented from performing,
or is
unable to perform, any obligations under this Agreement due to
any act of
God, fire, any natural disaster, or any man-created event such
as war,
strike, etc., which is beyond the reasonable control of the affected
Party, and if the affected Party has taken all reasonable steps
to
mitigate the effects of this occurrence, and has given prompt written
notice to the other Parties, then its performance shall be excused
and the
time for performance shall be extended for the delay so created.
Regardless of the source of the delay, however, if the affected
Party is
not able to perform within 180 days after such event, either of
the
unaffected Parties may, at their sole discretion, terminate this
Agreement. Such termination shall not affect the obligations of
any Party
that exist as of the date of
termination.
|
|
12.10
|
If
any of the provisions of this Agreement are found by any court
or tribunal
of competent jurisdiction to be unenforceable, then such provisions
will
be enforced to the maximum extent permissible, and the remaining
provisions of this Agreement will be unaffected thereby and will
remain in
full force and effect.
|
|
12.11
|
No
waiver of any provision of this Agreement affecting AeroGrow and
MKD shall
be effective except by written agreement signed by both parties.
The
failure by either Party at any time to require performance of the
other
Party of any provision of this Agreement will in no way affect
the right
of such Party thereafter to enforce the same provision, nor will
the
waiver by either Party of any breach of any provision hereof be
taken or
held to be a waiver of any other or subsequent breach, or as a
waiver of
the provision itself.
|
|
12.12
|
No
waiver of any provision of this Agreement affecting AeroGrow and
SP shall
be effective except by written agreement signed by both parties.
The
failure by either Party at any time to require performance of the
other
Party of any provision of this Agreement will in no way affect
the right
of such Party thereafter to enforce the same provision, nor will
the
waiver by either Party of any breach of any provision hereof be
taken or
held to be a waiver of any other or subsequent breach, or as a
waiver of
the provision itself.
|
|
12.13
|
All
notices and other communications required or permitted under this
Agreement will be in writing, and will be deemed given (i) when
delivered
personally, (ii) when sent by confirmed facsimile, or e-mail transmission,
(iii) one (1) day after having been sent by commercial overnight
courier
with written verification of receipt, or (iv) five (5) days after
having
been sent by registered or certified airmail, return receipt requested,
or
upon actual receipt thereof, whichever occurs first. All communications
will be sent to the receiving Party's address on the first page
of this
Agreement or to such other address that the receiving Party may
have
provided for the purpose of notice.
|
|
12.14
|
While
AeroGrow may use its standard Purchase Order form to release items,
quantities, prices, schedules, change notices, specifications or
other
notice provided for hereunder, in the event of any conflict, discrepancy,
or inconsistency between this Agreement and any Purchase Order
or any
other document delivered pursuant hereto, such Purchase Order or
document
shall be governed by the terms and conditions of this
Agreement.
|
|
12.15
|
This
Agreement may be executed in up to four (4) counterparts, each
of which
shall be deemed or organized, but all of which shall constitute
one and
the same instrument.
|
IN
WITNESS whereof the parties hereto have signed this Agreement respectively
on
the date and in the month and year first above written.
|
For and on behalf of
|
|
For
and on behalf of
|
|
|
Mingkeda Industries CO., LTD.,
|
|
AeroGrow International, Inc.
|
|
|
GuangDong,
PRC
|
|
|
|
|
|
|
|
|
|
/s/
Mo Hezhao
|
|
/s/
Randy Seffren
|
|
|
|
|
|
|
|
For and on behalf of Source Plus,
Inc.
|
|
For
and on behalf of Mingkeda Industries
|
|
|
|
|
CO.,
LTD., Hong Kong
|
|
|
|
|
|
|
|
/s/
Robert Tomko
|
|
/s/
Randy Seffren
|
|
|
|
|
|
|
EXHIBIT
10.16
AEROGROW
INTERNATIONAL, INC.
SUBSCRIPTION
AGREEMENT
INSTRUCTIONS
IMPORTANT:
PLEASE READ CAREFULLY BEFORE SIGNING.
SIGNIFICANT
REPRESENTATIONS ARE CONTAINED IN THIS DOCUMENT
.
|
|
1.
|
Individual
Investors
must complete the requested information on pages 12 and 13 and sign
the
signature page on Page 13.
|
|
|
2.
|
Entity
Investors
must complete the requested information on pages 14 and 15 and if
applicable, page 16 and sign the signature page on page 15 and if
applicable, page 16.
|
|
|
3.
|
Every
Investor
must complete the NASD questionnaire found on pages 17 through 20,
and
sign the signature page on page 21.
|
|
|
4.
|
Every
Investor
must complete Keating Securities, LLC Customer Account
Application,
attached hereto, if the Investor does not have a current Customer
Account
Application on file with Keating Securities,
LLC.
|
DELIVER
THE EXECUTED AGREEMENTS, NASD QUESTIONNAIRE, AND CUSTOMER ACCOUNT APPLICATION
TO:
Keating
Securities, LLC
5252
DTC Parkway, Suite 1090
Greenwood
Village, CO 80111
Attention:
Jeff Andrews
ALONG
WITH PAYMENT FOR THE UNITS SUBSCRIBED FOR
If
you
are tendering a check, make it payable to “AeroGrow International, Inc.
Segregated Account.” If you are paying by wire transfer, please contact Jeff
Andrews of Keating Securities, LLC for instructions at (720) 889-0134.
If
you
have any questions regarding this form, please contact Jeff Andrews of Keating
Securities, LLC at (720) 889-0134.
SUBSCRIPTION
AGREEMENT
AEROGROW
INTERNATIONAL, INC. (“Company”) and the Investor hereby agree as
follows:
1.
Subscription
for Securities.
I
(sometimes referred to herein as the “Investor”) hereby subscribe for and agree
to purchase the number of units (“Units”), consisting 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 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 first such Registered Offering (“Public Offering
Price”) (“Warrants”), set forth on the signature page hereto upon the terms and
conditions described in this Agreement. The price per Unit is
$10,000.
There
will be a minimum subscription amount of 3 Units per Investor, or $30,000,
unless the Company and the Placement Agent waive such minimum amount; provided,
in no case shall fractional Units be offered or sold.
The
Units
are being offered in a private placement in accordance with the terms set forth
in the Confidential Private Placement Memorandum dated June 6, 2005. Capitalized
terms not defined herein will have the same meaning as set forth in the
Memorandum. The Units will have the terms and conditions described herein and
in
the Memorandum and the Warrants will have the terms and conditions as set forth
in the Common Stock Purchase Warrant. Keating Securities, LLC. (“Keating
Securities”) is acting as managing placement agent for the
offering.
2.
Offering
Period
.
The
Units will be offered for sale commencing on the date of the Memorandum and
continuing until July 21, 2005, unless extended by the Company and Keating
Securities without notice to investors to a date not later than August 15,
2005
(the "Termination Date"); provided, however, that the Offering Period shall
in
all events terminate upon the sale of all of the Units.
3.
Investor
Delivery of Documents and Payment
.
I
hereby tender (i) to Steele Street State Bank, Denver, Colorado, for deposit
into the Company’s Segregated Account, the full purchase price of the Units I am
purchasing by check or wire, and (ii) to Keating Securities, one manually
executed copy of this Subscription Agreement with the appropriate questionnaires
therein completed, the completed NASD questionnaire attached to this
Subscription Agreement and the Customer Account Application (if I have not
previously provided one to the Placement Agent). If I am using a check, it
will
be made payable to “AeroGrow International, Inc. Segregated Account” maintained
by the Company at Steele Street State Bank. If I am paying by wire transfer,
I
will contact Jeff Andrews of Keating Securities for instructions at (720)
889-0134. Prior to the earlier of a Closing (as defined in Section 5 hereof)
or
the Termination Date, my check or wire transfer will be held in the Segregated
Account maintained by the Company at Steele Street State Bank, which shall
be a
non-interest bearing segregated bank account subject to the terms and conditions
herein. If the Company does not receive and accept my subscription by the
Termination Date, my payment will be returned to me without interest or
deduction.
4.
Acceptance
or Rejection of Subscription
.
The
Company and Keating Securities have the right to reject this subscription for
the Units, in whole or in part for any reason and at any time prior to the
Closing, notwithstanding prior receipt by me of notice of acceptance of my
subscription. In the event my subscription is rejected, my payment will be
returned promptly to me without interest or deduction and this Subscription
Agreement will have no force or effect. The Units subscribed for herein will
not
be deemed issued to or owned by me until one copy of this Subscription Agreement
has been executed by me and countersigned by the Company and the Closing with
respect to my subscription has occurred.
5.
Closing
and Delivery of Securities
.
The
offering is being made on a “best efforts, no minimum, $3,000,000 maximum”
basis.
There
is
no minimum number of Units that must be sold prior to the closing of this
offering. Accordingly, this offering may be closed at any time and in one or
more closings for any subscriptions that are received and accepted by the
Company, without the need for the Company to have sold any minimum number of
Units.
The
initial closing (“Initial Closing”) may occur at any time, as determined jointly
by the Company and Keating Securities. Subsequent closings with respect to
the
sale of additional Units may take place at any time with respect to
subscriptions accepted by the Termination Date (each such closing, together
with
the Initial Closing, being referred to as the “Closing”). In the event my
subscription is accepted and there is a Closing, my payment will be released
to
the Company and the certificates representing the Notes and the Warrants to
which I am subscribing for will be delivered promptly to me along with a fully
executed version of this Agreement.
6.
Conditions
to Closing
.
The
Closing of this offering is conditioned on the Company effecting a 1-for-5
reverse split of the Company’s outstanding Common Stock prior to the Initial
Closing (“Reverse Split”). All securities in this offering are adjusted for and
take into account the Reverse Split.
7.
Offering
to Accredited Investors
.
This
offering is limited to accredited investors as defined in Section 2(15) of
the
Securities Act of 1933, as amended (“Securities Act”), and Rule 501 promulgated
thereunder, and is being made without registration under the Securities Act
in
reliance upon the exemptions contained in Sections 3(b), 4(2) and/or 4(6) of
the
Securities Act, and Rule 506 of Regulation D, promulgated as part of the rules
and regulations under the Securities Act, and applicable state securities laws.
As indicated by the responses on the signature page hereof, the Investor is
an
accredited investor within the meaning of Section 2(15) of the Securities Act
and Rule 501 promulgated thereunder.
8.
Registration
Rights
.
8.1.
Filing
of Registration Statement
.
The
Company will file, on one occasion only, a registration statement under the
Securities Act filed with the Securities and Exchange Commission (“Commission”)
to register for re-offer and re-sale, the Common Stock into which the Notes
may
be converted, the Common Stock underlying the Warrants included in the Units
and
the Common Stock underlying the warrants received upon conversion of the Notes
(collectively, “Registrable Securities”) on behalf of the Investors (or
subsequent holders, referred to together as the “Holders”)
.
The
registration statement will be filed within sixty (60) days after the final
Closing of this offering and the Company will use its commercially reasonable
efforts to have the registration statement declared effective within one hundred
fifty (150) days after the final Closing. Each Holder will provide upon request,
such information as the Company may require for inclusion in the registration
statement. All costs associated with the registration of the Registrable
Securities, other than brokerage commissions incurred by the Holders in
connection with resales of the Registrable Securities, shall be borne by the
Company. The Registrable Securities and the Common Stock underlying the warrants
to be issued to Placement Agents under this offering will be included on the
registration statement. If the Registration Statement is not declared effective
within 150 days of the Closing Date, for any reason, other than adverse market
conditions as determined by the Placement Agent in its sole discretion,
investors holding Notes with a principal amount of not less than $2,000,000
in
the aggregate may demand, on a one-time basis, the registration of the
Registrable Securities and any Penalty Shares on a registration statement
covering only the foregoing securities, unless the demanding Holders first
consent in writing to
the
continuation of efforts to achieve effectiveness of the Registration Statement
if previously filed by the Company.
Upon
effectiveness of any new or continued registration statement, the Company shall
promptly file a Form 8-A to register its common stock under section 12(g) of
the
Exchange Act of 1934, as amended (“Exchange Act”) to the extent that such shares
of Common Stock are not already registered. As long as the Notes remain
outstanding, the Company shall provide to each purchaser: (i) quarterly
financial statements prepared in accordance with GAAP within 45 days after
the
end of each quarter, and (ii) annual audited financial statements prepared
in
accordance with 90 days after the end of each fiscal year end, unless such
financial statements are included in periodic reports under the Exchange Act,
which are timely filed.
8.2.
Effective
and Current
.
The
Company will use its reasonable commercial efforts to keep the registration
statement which registers the Registrable Securities pursuant hereto effective
and the related prospectus current until the earlier of the date by which all
of
the Registrable Securities has been sold or the date that the Registrable
Securities may be sold pursuant to Rule 144(k) promulgated under the Securities
Act as provided in Section 8.5 hereof.
8.3.
Amended
Prospectus
.
The
Company will notify each Holder of such Registrable Securities as expeditiously
as possible following the effectiveness of the registration statement on which
the Registrable Securities are registered, and/or of any request by the
Securities and Exchange Commission (“Commission”) for the amending or
supplementing of such registration statement or prospectus. If the prospectus
is
amended to comply with the requirements of the Securities Act, the Holders,
if
requested by the Company, will immediately cease making offers of the
Registrable Securities and return all prospectuses to the Company, and the
Company will promptly provide the Holders with revised prospectuses to enable
the Holders to resume making offers of the Registrable Securities. The Company
will promptly notify the Holders, if after delivery of a prospectus to the
Holders, that, in the judgment of the Company, it is advisable to suspend use
of
the prospectus delivered to the Holders due to pending material developments
or
other events that have not yet been publicly disclosed and as to which the
Company believes public disclosure would be detrimental to the Company. Upon
receipt of such notice, each such Holder will immediately discontinue any sales
of Registrable Securities pursuant to such registration statement until such
Holder has received copies of a supplemented or amended prospectus or until
such
Holder is advised in writing by the Company that the then current prospectus
may
be used and has received copies of any additional or supplemental filings that
are incorporated or deemed incorporated by reference in such prospectus.
Notwithstanding anything to the contrary herein, the Company will not exercise
its rights under this subsection to suspend sales of Registrable Securities
for
a period in excess of 60 days in any 365-day period.
8.4.
Indemnification
.
(a)
The
Company will indemnify the Holders of the Registrable Securities to be sold
pursuant to any registration statement hereunder, the officers and directors
of
each Holder, each underwriter of such Registrable Securities and each person,
if
any, who controls such Holders or underwriters within the meaning of Section
15
of the Securities Act or Section 20(a) of the Exchange Act, or any state
securities law or regulation, against all loss, claim, damage, expense or
liability (including all reasonable attorneys’ fees and other expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever incurred by the indemnified party in any action or proceeding between
(A) the indemnified party and any third party or otherwise or (B) the indemnitor
and the indemnified party only with respect to an action or proceeding to
enforce the indemnification provisions of this Section 8.4(a) to which any
of
them may become subject under the Securities Act, the Exchange Act or any other
statute or at common law or otherwise under the laws of any of the United States
or foreign countries, arising from such registration statement or based upon
any
untrue statement or alleged untrue statement of a material fact contained in
(x)
any preliminary prospectus, the registration statement or prospectus (as from
time to time each may be amended and supplemented); (y) any post-effective
amendment or amendments or any new registration statement and prospectus in
which is included the Registrable Securities; or (z) any application or other
document or written communication (collectively called “application”) executed
by the Company or based upon written information furnished by the Company in
any
jurisdiction in order to qualify the Registrable Securities under the securities
laws thereof or filed with the Commission, any state securities commission
or
agency or any securities exchange; or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, unless such statement or omission is made in reliance upon,
and
in conformity with, written information furnished to the Company by and with
respect to such registered holders (“Purchaser Information”) expressly for use
in any preliminary prospectus, the registration statement or prospectus, or
any
amendment or supplement thereof, or in any application, as the case may be,
or
unless the indemnities failed to deliver a final prospectus in which the
material misstatement or omission was corrected. Subject to the foregoing
provisions of this paragraph, the Company will reimburse such Holder,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such Holder, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action. The Company agrees promptly to notify such Holders of
the
commencement of any litigation or proceedings against the Company or any of
its
officers, directors or controlling persons in connection with the issue and
sale
or resale of the Registrable Securities or in connection with the registration
statement or prospectus.
(b)
The
Holders agree to indemnify and hold harmless the Company, the officers and
directors of the Company and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20(a) of
the
Exchange Act against all loss, claim, damage, expense or liability to which
the
Company or such controlling person may become subject, under the Securities
Act
or otherwise insofar as such losses, claims, damages, expenses or liabilities
(or actions in respect thereof) arise out of or are based upon Purchaser
Information that is included or relied upon by the Company in the registration
statement or prospectus or any amendment or supplement thereto or in any
application; and will reimburse the Company, officer, director and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided that such loss, claim, damage, expense or
liability is found ultimately to arise out of or be based upon such Purchaser
Information.
(c)
Any
party
entitled to indemnification hereunder (“Indemnified Party”) will permit the
Company to assume the defense of any such claim or any litigation resulting
therefrom; provided, that counsel for the Company, who will conduct the defense
of such claim or litigation, will be approved by the Indemnified Party (whose
approval shall not be unreasonably withheld). The Indemnified Party may
participate in such defense at such party’s expense; provided, however, that the
Company will pay such expense if representation of such Indemnified Party by
the
counsel retained by the Company would be inappropriate due to actual or
potential differing interests between the Indemnified Party and any other party
represented by such counsel in such proceeding; provided further that in no
event will the Company be required to pay the expenses of more than one law
firm
per jurisdiction as counsel for the Indemnified Party. The Company is also
responsible for the expenses of such defense if the Company does not elect
to
assume such defense. The Company, in the defense of any such claim or litigation
may not, except with the consent of each Indemnified Party, consent to entry
of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim
or
litigation, and no Indemnified Party may consent to entry of any judgment or
settle such claim or litigation without the prior written consent of the
Company, which consent may not be unreasonably withheld.
8.5.
Periodic
Reporting.
The
Company agrees that during the period commencing on the effectiveness of any
registration statement with respect to the Company’s securities and continuing
until the Holder can sell his Registrable Securities without restriction under
Rule 144(k) promulgated under the Securities Act and all restrictive legends
under the Securities Act are removed from the certificates representing such
securities and any stop transfer order for such certificates is removed, it
will
timely file all reports due pursuant to the Exchange Act and it will not
terminate its obligation to file periodic reports under the Exchange Act or
Securities Act.
8.6.
Expiration
of Registration Rights
.
Notwithstanding anything to the contrary contained herein, such registration
is
not required to be continued for any Holder of Registrable Securities if in
the
opinion of counsel to the Company, the Holder can sell his Registrable
Securities without restriction under Rule 144(k) promulgated under the
Securities Act and all restrictive legends under the Securities Act are removed
from the certificates representing such securities and any stop transfer order
for such certificates is removed.
8.7.
Successors
.
The
registration rights granted to the Holders inure to the benefit of all the
Holder’s successors, heirs, pledges, assignees, transferees and purchasers of
the Notes, Warrants or underlying Common Stock, subject to the limitations
imposed by interpretations of the SEC regarding selling security holder
registration statements.
8.8.
Penalties
.
The
Company and Holder agree that Holder will suffer damages if the Company fails
to
fulfill certain of its filing date and other obligations pursuant to Sections
8.1 and 8.5 hereof and that it would not be possible to ascertain the extent
of
such damages with precision. Accordingly, the Company hereby agrees to pay
liquidated damages (“Liquidated Damages”) to the Holder under the following
circumstances: (a) if the Registration Statement is not filed by the Company
on
or prior to 60 days after the final Closing in the offering (such an event,
a
“Filing Default”); (b) if the Registration Statement is not declared effective
by the SEC on or prior to 150 days after the final Closing in the offering
(such
an event, an “Effectiveness Default”); or (c) if, pursuant to the Company’s
obligations under Section 8.5 hereof, the Company does not file its required
periodic reports under the Exchange Act when due (such an event, a “Reporting
Default” and together with a Filing Default and an Effectiveness Default, a “SEC
Default”). In the event of an SEC Default, the Company shall as Liquidated
Damages pay to Holder, for each 30-day period of an SEC Default, an amount
equal
to 1% of the aggregate purchase price paid for the Units purchased in the
offering pursuant to this Agreement up to a maximum aggregate of 24 months
of
SEC Defaults. The Company shall pay the Liquidated Damages in shares of Common
Stock, priced at $2.00 per share as follows: (i) in connection with a Filing
Default, on the 61st day after the Initial Closing, and each 30th day thereafter
until the Registration Statement is filed with the SEC; (ii) in connection
with an Effectiveness Default, on the 151
st
day
after the Initial Closing, and each 30th day thereafter until the Registration
Statement is declared effective by the SEC; or (iii) in connection with a
Reporting Default, on the 31
st
consecutive day of after a Reporting Default has occurred, provided that if
the
Reporting Default has been cured, then such days during which a Reporting
Default were accruing will be added to any future Reporting Default period
for
the purposes of calculating the payment of the liquidated damages provided
for
in this provision. Notwithstanding the foregoing, there shall be no penalty
for
a delay in filing or effectiveness caused by adverse market conditions as
determined by the Placement Agent in it sole discretion.
8.9.
Lock-up
Provisions.
Notwithstanding the Registration Rights or an effective Registration Statement
for the Conversion Shares and Underlying Common Stock, each Investor will be
contractually prohibited from selling or transferring any Conversion Shares
or
Underlying Common Stock until the 180th day following the closing of the
Registered Offering, unless the underwriter agrees to an earlier
date.
9.
Investor
Representations and Warranties
.
9.1.
Investor
Representations
.
I am
aware that, except for any rescission rights that may be provided under
applicable laws, I am not entitled to cancel, terminate or revoke this
subscription, and any agreements made in connection herewith will survive my
death or disability. In order to induce the Company to issue and sell the Units
to me, I represent and warrant that the information relating to me stated herein
is true and complete as of the date hereof and will be true and complete as
of
the date on which my purchase of Units becomes effective. If, prior to the
final
consummation of the offer and sale of the Units, there should be any change
in
such information or any of the information becomes incorrect or incomplete,
I
agree to notify the Company and supply the Company promptly with corrective
information.
9.2.
Information
About the Company
.
(a)
I
have
read the Memorandum relating to this offering and all exhibits listed therein
and fully understand the Memorandum, including the “Risk Factors” contained
therein. I have been given access to full and complete information regarding
the
Company and have utilized such access to my satisfaction for the purpose of
verifying the information included in the Memorandum and exhibits thereto,
and I
have either met with or been given reasonable opportunity to meet with officers
of the Company for the purpose of asking reasonable questions of such officers
concerning the terms and conditions of the offering of the Units and the
business and operations of the Company, and all such questions have been
answered to my full satisfaction. I also have been given an opportunity to
obtain any additional relevant information to the extent reasonably available
to
the Company. I have received all information and materials regarding the Company
that I have reasonably requested. After my reading of the materials about the
Company, I understand that there is no assurance as to the future performance
of
the Company.
(b)
I
have
received no representation or warranty from the Company or Keating Securities
or
any of their respective officers, directors, employees or agents in respect
of
my investment in the Company. I am not participating in the offering as a result
of or subsequent to: (i) any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television, radio or the Internet, or (ii) any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising.
9.3.
Speculative
Investment
.
I am
aware that the Units are a speculative investment that involves a high degree
of
risk including, but not limited to, the risk of losses from operations of the
Company and the total loss of my investment. I have such knowledge and
experience in financial and business matters as to be capable of evaluating
the
merits and risks of an investment in the Units and have obtained, in my
judgment, sufficient information from the Company to evaluate the merits and
risks of an investment in the Company. I have not utilized any person as my
purchaser representative (as defined in Regulation D) in connection with
evaluating such merits and risks and have relied solely upon my own
investigation in making a decision to invest in the Company. I have been urged
to seek independent advice from my professional advisors relating to the
suitability of an investment in the Company in view of my overall financial
needs and with respect to the legal and tax implications of such investment.
I
believe that the investment in the Units is suitable for me based upon my
investment objectives and financial needs, and I have adequate means for
providing for my current financial needs and contingencies and have no need
for
liquidity with respect to my investment in the Company. The investment in the
Company does not constitute all or substantially all of my investment
portfolio.
9.4.
Restrictions
on Transfer
.
I
understand that (i) none of the Registrable Securities have been registered
under the Securities Act or the securities laws of certain states in reliance
on
specific exemptions from registration, (ii) no securities administrator of
any
state or the federal government has recommended or endorsed this offering or
made any finding or determination relating to the fairness of an investment
in
the Company, and (iii) the Company is relying on my representations and
agreements for the purpose of determining whether this transaction meets the
requirements of the exemptions afforded by the Securities Act and certain state
securities laws. Other than as set forth herein, I acknowledge that there is
no
assurance that the Company will file any registration statement for the
securities I am purchasing, that such registration statement, if filed, will
be
declared effective or, if declared effective, that the Company will be able
to
keep it effective until I sell the securities registered thereon. Furthermore,
I
agree to furnish the Company with such information regarding myself and the
distribution of the securities proposed by me as the Company may request in
connection with any registration, qualification or compliance with the Company’s
registration obligations set forth herein.
9.5.
Investment
Representation
.
I am
purchasing the Units for my own account for investment and not with a view
to,
or for sale in connection with, any subsequent distribution of the securities,
nor with any present intention of selling or otherwise disposing of all or
any
part of the Registrable Securities.
I
understand that, although there is a public market for the Registrable
Securities, there is no assurance that such market will continue and there
is no
market at present for the Warrants and it is unlikely that a market will ever
develop for the Warrants in the future. I understand and agree that the
Registrable Securities cannot be resold, pledged, assigned or otherwise disposed
of unless they are subsequently registered under the Securities Act and under
applicable securities laws of certain states, or an exemption from such
registration is available.
I
understand that, except as set forth herein, the Company is under no obligation
to register the securities or to assist me in complying with any exemption
from
such registration under the Securities Act or any state securities laws. I
hereby authorize the Company to place a legend denoting the restrictions on
the
certificates representing the securities.
9.6.
Entity
Authority
.
If the
Investor is a corporation, partnership, company, trust, employee benefit plan,
individual retirement account, Keogh Plan or other tax-exempt entity, it is
authorized and qualified to become an investor in the Company and the person
signing this Subscription Agreement on behalf of such entity has been duly
authorized by such entity to do so.
9.7.
No
Offer Until Determination of Suitability
.
I
acknowledge that any delivery to me of the documents relating to the offering
of
the Units prior to the determination by the Company of my suitability will
not
constitute an offer of the Units until such determination of suitability is
made.
9.8.
For
Florida Residents
.
None of
the Units, Notes or underlying Common Stock and Warrants have been registered
under the Florida Securities Act, by reason of specific exemptions thereunder
relating to the limited availability of the offering. Pursuant to Section
517.061(11) of the Florida Securities Act, when sales are made to five (5)
or
more persons in Florida, any sale made pursuant to Subsection 517.061(11) of
the
Florida Securities Act will be voidable by such Florida purchaser either within
three days after the first tender of consideration is made by the purchaser
to
the issuer or an agent of the issuer, or within three days after the
availability of the privilege is communicated to such purchaser, whichever
occurs later. In addition, as required by Section 517.061(11)(a)(3), Florida
Statutes and by Rule 3-500.05(a) thereunder, if I am a Florida resident I may
have, at the offices of the Company, at any reasonable hour, after reasonable
notice, access to the materials set forth in the Rule that the Company can
obtain without unreasonable effort or expense.
10.
Indemnification
.
I
hereby agree to indemnify and hold harmless the Company and Keating Securities,
their respective officers, directors, stockholders, employees, agents and
attorneys against any and all losses, claims, demands, liabilities, and expenses
(including reasonable legal or other expenses incurred by each such person
in
connection with defending or investigating any such claims or liabilities,
whether or not resulting in any liability to such person or whether incurred
by
the indemnified party in any action or proceeding between the indemnitor and
indemnified party or between the indemnified party and any third party) to
which
any such indemnified party may become subject, insofar as such losses, claims,
demands, liabilities and expenses (a) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact made by me and
contained herein or (b) arise out of or are based upon any breach by me of
any
representation, warranty or agreement made by me contained herein. Keating
Securities is a third-party beneficiary of this Section and this Section may
not
be modified or amended without the prior written agreement of Keating
Securities.
11.
Severability;
Remedies
.
In the
event any parts of this Subscription Agreement are found to be void, the
remaining provisions of this Subscription Agreement are nevertheless binding
with the same effect as though the void parts were deleted.
12.
Governing
Law and Jurisdiction
.
This
Subscription Agreement will be deemed to have been made and delivered in
Colorado and will be governed as to validity, interpretation, construction,
effect and in all other respects by the internal laws of the State of Colorado.
Each of the Company and the Investor hereby (i) agrees that any legal suit,
action or proceeding arising out of or relating to this Subscription Agreement
will be instituted exclusively in the District Court, City and County of Denver,
or in the United States District Court for the District of Colorado, (ii) waives
any objection to the venue of any such suit, action or proceeding and the right
to assert that such forum is not a convenient forum for such suit, action or
proceeding, (iii) irrevocably consents to the jurisdiction of the District
Court, City and County of Denver, and the United States District Court for
the
District of Colorado in any such suit, action or proceeding, (iv) agrees to
accept and acknowledge service of any and all process that may be served in
any
such suit, action or proceeding in the District Court, City and County of Denver
or in the United States District Court for the District of Colorado and (v)
agrees that service of process upon it mailed by certified mail to its address
set forth on my signature page will be deemed in every respect effective service
of process upon it in any suit, action or proceeding.
13.
Counterparts
.
This
Subscription Agreement may be executed in one or more counterparts, each of
which will be deemed an original but all of which together will constitute
one
and the same instrument. The execution of this Subscription Agreement may be
by
actual or facsimile signature.
14.
Benefit
.
Except
as otherwise set forth herein, this Subscription Agreement is binding upon
and
inures to the benefit of the parties hereto (and Keating Securities to the
extent it is a third-party beneficiary hereof) and their respective heirs,
executors, personal representatives, successors and assigns. Keating Securities
is a third-party beneficiary with respect to any sections hereof that so state
or that otherwise indicate that Keating Securities would be entitled to rely
on
the representations, warranties or covenants made by me therein.
15.
Notices
.
All
notices, offers, acceptance and any other acts under this Subscription Agreement
(except payment) must be in writing, and is sufficiently given if delivered
to
the addressees in person, by overnight courier service, or, if mailed, postage
prepaid, by certified mail (return receipt requested), and will be effective
three days after being placed in the mail if mailed, or upon receipt or refusal
of receipt, if delivered personally or by courier or confirmed telecopy, in
each
case addressed to a party. All communications to me should be sent to my
preferred address on the signature page hereto. All communications to the
Company should be sent to:
|
|
AEROGROW
INTERNATIONAL, INC.
|
|
|
900
28
th
Street, Suite 201
|
|
|
Boulder,
CO 80303
|
|
|
Tel:
303-444-7755
|
|
|
Fax:
303-444-0406
|
|
|
|
|
|
(or
to such person, address, and telephone and fax number set forth
in the
Company’s last filing with the SEC)
|
|
|
|
|
and
|
Keating
Securities, LLC
|
|
|
5251
DTC Parkway, Suite 1090
|
|
|
Greenwood
Village, CO 80111
|
|
|
Attn:
Timothy J. Keating
|
|
|
Tel.:
(720) 889-0131
|
|
|
Fax:
(720) 889-0135
|
16.
Oral
Evidence
.
This
Subscription Agreement constitutes the entire agreement between the parties
with
respect to the subject matter hereof and supersedes all prior oral and written
agreements between the parties hereto with respect to the subject matter hereof.
This Subscription Agreement may not be changed, waived, discharged, or
terminated orally, but rather, only by a statement in writing signed by the
party or parties against which enforcement or the change, waiver, discharge
or
termination is sought.
17.
Section
Headings
.
Section
headings herein have been inserted for reference only and will not be deemed
to
limit or otherwise affect, in any matter, or be deemed to interpret in whole
or
in part, any of the terms or provisions of this Subscription
Agreement.
18.
Survival
of Representations, Warranties and Agreements
.
The
representations, warranties and agreements contained herein will survive the
delivery of, and the payment for, the Units.
19.
Acceptance
of Subscription
.
The
Company may accept this Subscription Agreement at any time for all or any
portion of the Securities subscribed for by executing a copy hereof as provided
and notifying me within a reasonable time thereafter.
[SIGNATURE
PAGES FOLLOW]
SIGNATURE
PAGE FOR
INDIVIDUAL INVESTORS
-
COMPLETE ALL INFORMATION
Name
:
________________________________________________
Name
of Joint Investor
(if
any): ____________________________________
Residence
Address
:
__________________________________________________________________________________________________
Telephone
:
(H)_______________________________ (W)_______________________________________
Fax __________________________
Occupation
:__________________________________________________Employer:_______________________________________________
Business
Address
:
___________________________________________________________________________________________________
Send
communications to
:
¨
Home
¨
Office
¨
E-Mail:
______________________________________________________________________
Age
:
_______________
Social
Security Number
:
____________________
Check
manner in which securities are to be held
:
|
¨
Individual
Ownership
|
¨
Tenants
in Common
|
¨
Joint
Tenants with
Right
of Survivorship
(both
parties must sign)
|
|
|
|
|
|
¨
Community
Property
|
|
¨
Other
(please indicate)
_______________________
|
|
|
|
|
Amount
of Investment
:
Number
of
Units (minimum of 3 Units per Investor) :______________
Corresponding
dollar amount ($10,000 multiplied by number of Units):
$_______________
Accredited
Investor Status For Individuals
.
(INVESTORS THAT ARE CORPORATIONS, LIMITED LIABILITY COMPANIES, PARTNERSHIPS,
REVOCABLE TRUSTS, IRREVOCABLE TRUSTS, EMPLOYEE BENEFIT PLAN TRUSTS AND
INDIVIDUAL RETIREMENT ACCOUNTS SHOULD IGNORE THE FOLLOWING QUESTIONS AND PROCEED
TO THE ENTITY SIGNATURE PAGE).
(a)
I
am an
accredited investor within the meaning of Section 2(15) of the Securities Act
and Rule 501 promulgated thereunder because (check any boxes that
apply):
|
|
My
individual annual income during each of the two most recent years
exceeded
$200,000 and I expect my annual income during the current year will
exceed
$200,000.
|
|
o
|
If
I am married, my joint annual income with my spouse during each of
the two
most recent years exceeded $300,000 and I expect my joint annual
income
with my spouse during the current year will exceed
$300,000.
|
|
|
|
|
o
|
My
individual or joint (together with my spouse) net worth (including
my
home, home furnishings and automobiles) exceeds
$1,000,000.
|
(b)
The
aggregate value of my assets is approximately $___________.
(c)
My
aggregate liabilities are approximately $___________.
(d)
My
current and expected income is:
|
YEAR
|
INCOME
|
|
2005
(Estimated)
|
$
|
|
2004
(Actual)
|
$
|
|
2003
(Actual)
|
$
|
I
hereby
confirm the information set forth above is true and correct in all respects
as
of the date hereof and will be on the date of the purchase of Units.
|
ALL
INVESTORS MUST SIGN AND PRINT NAME BELOW
Signature:_____________________________________________
Print
Name:____________________________________________
Date:_________________________________________________
Signature:_____________________________________________
Print
Name:____________________________________________
Date:_________________________________________________
|
The
foregoing subscription is accepted and the Company hereby agrees
to be
bound by its terms.
AEROGROW
INTERNATIONAL, INC.
By:____________________________________________________
Name:__________________________________________________
Title:___________________________________________________
Date:___________________________________________________
|
SIGNATURE
PAGE FOR
ENTITY
INVESTORS
-
COMPLETE ALL INFORMATION
Name
of Entity
:
_______________________________________________________________________________________________
Address
of Principal Office
:______________________________________________________________________________________
Telephone
:
______________________________________________________________
Fax
:
________________________________
Taxpayer
Identification Number
:
____________________________
Check
type of Entity
:
|
¨
|
Employee
Benefit Plan Trust
|
|
¨
|
Limited
Partnership
|
|
¨
|
General
Partnership
|
|
¨
|
Individual
Retirement Account
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¨
|
Limited
Liability Company
|
|
¨
|
Revocable
Trust
|
|
¨
|
Corporation
|
|
¨
|
Other
(please
indicate)
|
|
|
¨
|
Irrevocable
Trust (If the Investor is an Irrevocable Trust, a supplemental
questionnaire must be completed by the person directing the decision
for
the trust to determine by accredited investor status. Please contact
Keating Securities for a copy of such supplemental
questionnaire.)
|
Amount
of Investment
:
Number
of
Units (minimum 3 Units per Investor):______________
Corresponding
dollar amount ($10,000 multiplied by number of Units):
$_______________
Date
of Formation or incorporation
:
____________
State
of Formation
:
_____________________
Describe
the business of the Entity
:
_________________________________________________________________________________
_____________________________________________________________________________________________________________
List
the names and positions
of the
executive officers, managing members, partners or trustees authorized to act
with respect to investments by the Entity generally and specify who has the
authority to act with respect to this investment.
|
Name
|
Position
|
Authority
for this investment (yes or no)
|
|
|
|
|
|
|
|
|
Accredited
Investor Status for Entities
.
(a)
Check
all
boxes which apply (IRA Entities can skip this question and go to
(b)):
|
|
o
|
The
Entity was
not
formed for the specific purpose of investing in the
Company
|
|
|
o
|
The
Entity has total assets in excess of $5 million
dollars
|
|
|
o
|
For
Employee Benefit Plan Trusts Only
:
The decision to invest in the Company was made by a plan fiduciary,
as
defined in Section 3(21) of ERISA, who is either a bank, insurance
company
or registered investment advisor.
|
(b)
If
you
did not check the first two of the three boxes in Question (a)
or
if the
Entity is an Individual Retirement Account, a Self-directed Employee Benefit
Plan Trust or an Irrevocable Trust, list the name of each person
who:
(i)
owns
an
equity interest in the Entity (i.e., each shareholder if the Entity is a
corporation, each member if the Entity is a limited liability company and each
partner if the Entity is a partnership); or
(ii)
is
a
grantor for the revocable trust or Individual Retirement Account;
or
(iii)
is
the
person making the investment decision for a self-directed Employee Benefit
Plan
Trust; or
(iv)
is
the
person making the investment decisions for an Irrevocable Trust.
___________________________
__________________________
___________________________
__________________________
EACH
PERSON LISTED ABOVE MUST SEPARATELY COMPLETE AND SUBMIT TO THE COMPANY THE
ANSWERS TO THE QUESTIONS FOLLOWING THE SIGNATURE BOX BELOW AND SIGN THE WRITTEN
CONFIRMATION IMMEDIATELY FOLLOWING.
|
INVESTOR:
____________________________________________________
Signature
of Authorized Signatory
Name:_______________________________________________
Title:________________________________________________
Date:________________________________________________
|
The
foregoing subscription is accepted and the Company hereby agrees
to be
bound by its terms.
AEROGROW
INTERNATIONAL, INC.
By:_______________________________________________
Name:_____________________________________________
Title:______________________________________________
Date:______________________________________________
|
Accredited
Investor Questions for Entity equity owners and investment decision
makers
(a)
I
am an
accredited investor within the meaning of Section 2(15) of the Securities Act
and Rule 501 promulgated thereunder because (check any boxes that
apply):
|
o
|
My
individual annual income during each of the two most recent years
exceeded
$200,000 and I expect my annual income during the current year will
exceed
$200,000.
|
|
|
|
|
o
|
If
I am married, my joint annual income with my spouse during each of
the two
most recent years exceeded $300,000 and I expect my joint annual
income
with my spouse during the current year will exceed
$300,000.
|
|
|
|
|
o
|
My
individual or joint (together with my spouse) net worth (including
my
home, home furnishings and automobiles) exceeds
$1,000,000.
|
(b)
The
aggregate value of my assets is approximately $___________.
(c)
My
aggregate liabilities are approximately $___________.
(d)
My
current and expected income is:
|
YEAR
|
INCOME
|
|
2005
(Estimated)
|
$
|
|
2004
(Actual)
|
$
|
|
2003
(Actual)
|
$
|
I
hereby
confirm the information set forth above is true and correct in all respects
as
of the date hereof and will be on the date of the purchase of
Units.
Date:__________________________________
__________________________________
Name:
AEROGROW
INTERNATIONAL, INC.
NASD
QUESTIONNAIRE
INSTRUCTIONS
IMPORTANT:
PLEASE READ CAREFULLY BEFORE SIGNING. SIGNIFICANT REPRESENTATIONS ARE CONTAINED
IN THIS QUESTIONNAIRE.
|
|
1.
|
READ
ALL DEFINITIONS ON PAGES 18 AND 19 BEFORE ANSWERING ANY
QUESTIONS.
|
|
|
2.
|
EVERY
PERSON MUST ANSWER QUESTIONS 1 THROUGH 7 AND SIGN ON PAGE
21.
|
If
you
have any questions regarding this questionnaire, please call Richard Kranitz,
Esq., at Kranitz & Phillip, (262) 375-0625.
DEFINITIONS
FOR NASD QUESTIONNAIRE
|
Affiliate:
|
An
Affiliate of any person (for purposes hereof a “person” includes a
partnership, corporation or other legal entity such as a trust or
estate)
is a person which controls, is controlled by or is under common control
with such person. For purposes of this
definition:
|
(i)
a
person
should be presumed to control a Member of the NASD if the person beneficially
owns 10% or more of the outstanding voting securities of a Member of the NASD
which is a corporation, or beneficially owns a partnership interest in 10%
or
more of the distributable profits or losses of a Member of the NASD which is
a
partnership;
(ii)
a
Member
of the NASD should be presumed to control a person if the Member of the NASD
and
Persons Associated with a Member of the NASD beneficially own 10% or more of
the
outstanding voting securities of a person which is a corporation, or
beneficially own a partnership interest in 10% or more of the distributable
profits or losses of a person which is a partnership; and
(iii)
a
person
should be presumed to be under common control with a Member of the NASD
if:
(1)
the
same
person controls both the Member of the NASD and such person by beneficially
owning 10% or more of the outstanding voting securities of the Member of the
NASD and other such person which is a corporation, or by beneficially owning
a
partnership interest in 10% or more of the distributable profits or losses
of
the Member of the NASD and other such person which is a partnership;
or
(2)
a
person
having the power to direct or cause the direction of the management or policies
of the Member of the NASD also has the power to direct or cause the direction
of
the management or policies of the other entity in question.
|
Immediate
Family:
|
The
“Immediate Family” of any person, including an employee of or Person
Associated with a Member of the NASD, includes the parents, mother-in-law,
father-in-law, husband or wife, brother or sister, brother-in-law
or
sister-in-law, son-in-law or daughter-in-law, and children of such
person
or any other individual who is supported, directly or indirectly,
to a
material extent by such person.
|
|
Member
of
the
NASD:
|
A
“Member of the NASD” is any broker or dealer admitted to membership in the
NASD.
|
|
NASD:
|
The
National Association of Securities Dealers,
Inc.
|
Person
Associated
with
a Member
of
the NASD:
A
“Person
Associated with a Member of the NASD” is every sole proprietor, partner,
officer, director or branch manager of any Member of the NASD, or any natural
person occupying a similar status or performing similar functions, or any
natural person engaged in the investment banking or securities business who
is
directly or indirectly controlling or controlled by such Member of the NASD
(for
example, any employee), whether or not any such person is registered or exempt
from registration with the NASD.
Print
Name:__________________________
|
1.
|
State
whether you or any of your Affiliates or any members of your Immediate
Family are
|
(a)
a
Member
of the NASD;
¨
Yes
¨
No
(b)
a
Person
Associated with a Member of the NASD; or
¨
Yes
¨
No
(c)
an
Affiliate of a Member of the NASD.
¨
Yes
¨
No
|
2.
|
State
whether you or any of your Affiliates own stock or other securities
of any
Member of the NASD or an Affiliate of a Member of the
NASD.
|
¨
Yes
¨
No
|
3.
|
State
whether you or any of your Affiliates have made a subordinated
loan to any
Member of the NASD.
|
¨
Yes
¨
No
|
4.
|
If
you marked “Yes” to any of the questions above, please briefly describe
the facts below, giving the names of the Members of the NASD to which
your
answer refers (including, for example, percentage of ownership, amount
of
loan and interest payable, applicable dates, names of Affiliates,
immediate family, etc.).
|
State
whether you are an Immediate Family member of a partner of Kranitz &
Phillip, counsel to AeroGrow.
¨
Yes
¨
No
|
6.
|
(a)
State
whether you provide any consulting or other services to
AeroGrow.
|
¨
Yes
¨
No
If
you
marked “Yes”, please briefly describe such services, including cash and non-cash
compensation received and attach copies of written agreements or correspondence
describing such services.
|
|
(b)
|
Please
identify any of the following relationships you have with the Placement
Agent or any other Member of the
NASD.
|
|
None
|
¨
|
|
Advisor
|
¨
|
|
Officer
|
¨
|
|
Director
|
¨
|
|
Trustee
|
¨
|
|
Founder
|
¨
|
|
Registered
Representative
|
¨
|
|
5%
Stockholder
|
¨
|
|
Employee
|
¨
|
|
Immediate
Family
|
¨
|
|
Broker/Dealer
|
¨
|
|
Promoter
|
¨
|
|
Consultant
|
¨
|
|
Finder
|
¨
|
|
Bridge
Lender
|
¨
|
|
General
Partner
|
¨
|
|
Limited
Partner
|
¨
|
|
Equity
Investor
|
¨
|
|
Client
or Customer
|
¨
|
|
Subordinated
Debt Holder
|
¨
|
|
Other
|
¨
|
Please
describe the nature of any relationship identified above. For example, if you
are an advisor, promoter, consultant or finder, describe the compensation you
received; if you are an equity investor, state the class of securities and
percentage interest you hold; and if you are an Immediate Family Member,
describe the exact relationship, including the name of the person to whom you
are related and the position such person holds with Underwriter or such other
Member of the NASD. Identify the Member of the NASD:
|
7.
|
State
whether you have any oral and/or written agreements with any Member
of the
NASD or Person Associated With a Member of the NASD concerning
the
disposition of your securities of
AeroGrow.
|
¨
Yes
¨
No
If
you
marked “Yes”, please briefly describe such agreement and attach copies of
written agreements or correspondence describing such arrangement.
|
|
I
hereby affirm that the answers to the above NASD Questionnaire
are true
and correct as of the date set forth
below.
|
Date:
________________________ __________
_______________________
_______
___________________________
(Sign
Name)
(Print
Name)
EXHIBIT
10.17
FORM
OF
ASSIGNMENT OF APPLICATION
Whereas,
I/We, _______________________________________________
of
_______________________
,
hereafter referred to as applicant, have invented certain new and useful
improvements in
_______________________________________________________________________________________________________________
for
which
an application for a United States Patent was filed on
_________________________________
Application
Number ______________________________
for
which
an application for a United States Patent was executed on
____________________________
,
and
Whereas,
______________________________________
of
_____________________________________
here
referred to as "assignee" whose mailing address is
_________________________________________________________________________
is
desirous of acquiring the entire right, title and interest in the
same;
Now,
therefore, in consideration of the sum of _______ dollars ($______), the
receipt
whereof is acknowledge, and other good and valuable consideration, I/We,
the
applicant(s), by these presents do sell, assign and transfer unto said assignee
the full and exclusive right to the said invention in the United States and
the
entire rights, title and interest in and to any and all Patents which may
be
granted therefore in the United States. I/We hereby authorize and request
the
Director of the U.S. Patent and Trademark Office to issue said United States
Patent to said assignee, of the entire right, title, and interest in and
to the
same, for his sole use and behoof, and for the use and behoof of his legal
representatives, to the full end of the term for which said Patent may be
granted, as fully and entirely as the same would have been held by me had
this
assignment and sale not bee made.
Executed
this _________
day
of
___________________________
,
20
_________
at_________________________________________________________________________________________________
Printed
Name/Registration No., if applicable
State
of
_______________________
SS:
County
of
_____________________
Before
me
personally appeared said ______________________________________________________
and
acknowledged the foregoing instrument to be his free act and deed this
_______________
day
of
____________
,
20________
Seal
Note:
Signature of all the inventors or assignees of record of the entire interest
or
their representative(s) are required. Submit multiple forms if more than
one
signature is required. See below.
Total
of
________________________
forms
are
submitted.
This
form
offers a sample or suggested format for an assignment document. This sample
form
is not an OMB officially approved form.
EXHIBIT
10.18
FORM
OF NON-DISCLOSURE AGREEMENT
____________________
(Company Name), with its principal offices located at _____________
_____________________________________ (Company Address) (herein after called
"ABC"), is interested in entering into a business relationship (a "
Possible
Transaction
")
with
AeroGrow International, Inc., a Nevada corporation, with its headquarters
located at 900 28th Street, Suite 201, Boulder, CO 80303 (herein after called
"AeroGrow"). In order to discuss and evaluate the Possible Transaction, (a)
ABC
has requested that disclose AeroGrow disclose to ABC certain confidential
and
proprietary data and other information of substantial value to AeroGrow,
and (b)
AeroGrow has requested that ABC disclose to AeroGrow certain confidential
and
proprietary data and other information of substantial value to ABC. This
information may be in both oral and written form. Each of ABC and AeroGrow
acknowledges that the other's disclosure of its confidential and proprietary
data and information to third parties will prejudice its ability to conduct
its
business successfully. Accordingly, each of ABC and AeroGrow agrees that
its
respective receipt and use of the other's confidential and proprietary data
and
information will be subject to the following terms and conditions:
1.
As
used
in this Agreement, the following terms have the following meanings:
(a)
"
Affiliate
"
means
(i) any other Person directly or indirectly (through one or more intermediaries)
controlling, controlled by or under common control with that Person; (ii)
any
other Person owning or controlling ten percent (10%) or more of the outstanding
voting securities or beneficial interests of that Person; or (iii) an officer,
director, partner or member, or a member of the immediate family of an officer,
director, partner or member, of that Person. For these purposes "control"
means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership or voting securities, by contract or otherwise.
(b)
"
Confidential
Information
"
means:
(i) all information, data and materials disclosed or made available to the
Receiving Party by the Disclosing Party in connection with a Possible
Transaction, including, without limitation, all trade secrets, inventions,
drawings, file data, test data, documentation, diagrams, specifications,
know
how, processes, formulas, models, flow charts, software in various stages
of
development, source codes, object codes, research and development procedures,
test results, marketing techniques and materials, marketing and development
plans, price lists, pricing policies, business plans, information relating
to
customers and/or suppliers' identities, characteristics and agreements,
financial information and projection, and employee files and (ii) all analyses,
compilations, studies, reports, records or other documents or materials which
contain, or are prepared on the basis of any such non-public information
and
which are either furnished to the Receiving Party or are prepared by or for
the
Receiving Party or any of its directors, officers, employees, members, managers,
agents, advisors or Affiliates. Notwithstanding the above, "Confidential
Information" does not include any information that (i) is or becomes public
knowledge otherwise than by the Receiving Party's act or omission; or (ii)
is or
becomes available to the Receiving Party without obligation of confidence,
of
which the Receiving Party was or should have been aware, from a source (other
than the Disclosing Party) having the legal right to disclose that information;
or (iii) is already in the possession of the Receiving Party in documented
form
without an obligation of confidence, of which the Receiving Party was or
should
have been aware, and was not received by the Receiving Party in anticipation
of
a Possible Transaction or as a result of a prior relationship with the
Disclosing Party.
(c)
"
Disclosing
Party
"
means
the Person, either ABC or AeroGrow that is disclosing the Confidential
Information to the Receiving Party.
(d)
"
Person
"
means
any entity, corporation, company, association, joint venture, partnership,
trust, limited liability company, limited liability partnership, real estate
investment trust, organization, individual (including personal representatives,
executors and heirs of a deceased individual), nation, state, government
(including agencies, departments, bureaus, boards, divisions and
instrumentalities thereof), court, tribunal, mediator, arbitrator, trustee,
receiver or liquidator.
(e)
"
Receiving
Party
"
means
the Person, either ABC or AeroGrow, that is receiving the Confidential
Information from the Disclosing Party.
(f)
"
Representative
"
of a
Person means any director, officer, employee, shareholder, partner, member,
Affiliate, agent or advisor of that Person, including, without limitation,
any
attorney, accountant, consultant, banker or financial advisor of that
Person.
2.
The
Receiving Party will preserve as confidential all Confidential Information
which
the Receiving Party may obtain or prepare (a) during the course of discussions
between ABC and AeroGrow concerning a Possible Transaction, (b) during the
evaluation of a Possible Transaction and (c) during the course of any business
relationship which may be established between ABC and AeroGrow. Without the
prior written consent of the Disclosing Party, which may be given or withheld
by
the Disclosing Party in its sole and absolute discretion, the Receiving Party
will not (a) disclose or demonstrate any Confidential Information to any
other
Person nor give any other Person access thereto, nor (b) use any Confidential
Information except in evaluating a Possible Transaction, nor (c) disclose
to any
other Person either the fact that discussions or negotiations are taking
place
concerning a Possible Transaction, or the terms, conditions or status thereof
or
the fact that Confidential Information is being made available to the Receiving
Party; provided, however, that any such Confidential Information may be
disclosed to those of the Receiving Party's Representatives who (i) need
to know
the same for the sole purpose of evaluating a Possible Transaction and (ii)
agree to keep such Confidential Information confidential and to be bound
by the
terms of this Agreement to the same extent as if they were parties hereto.
If so
requested by the Disclosing Party, the Receiving Party will cause any such
Representatives to execute this Agreement so as to be personally bound hereby.
In any event, the Receiving Party will be responsible for any breach of this
Agreement by any of its Representatives, and the Receiving Party will, at
its
sole expense, take all reasonable measures (including, but not limited to,
court
proceedings) to restrain its Representatives from any prohibited or unauthorized
disclosure or use of the Confidential Information. Furthermore, no publicity
release or announcement concerning the discussions between ABC and AeroGrow,
this Agreement or a Possible Transaction will be issued, by either ABC or
AeroGrow without the advance written approval of the form and substance thereof
by the other. In the event that any such publicity release or announcement
is
required by law (in the opinion of either party's counsel), ABC or AeroGrow
will
consult with each other in advance and cooperate with respect to any required
press release or other disclosure.
3.
If
the
Receiving Party or any of its Representatives is requested (by subpoena,
interrogatory, request for information or documents, civil investigate demand
or
other similar legal process) to disclose any of the Confidential Information
to
any other Person, the Receiving Party will provide the Disclosing Party with
prompt written notice of such request so that the Disclosing Party may seek
a
protective order or other appropriate remedy and/or waive compliance with
the
provisions of this Agreement. Thereafter, if the Receiving Party or any such
Representative is nevertheless, in the opinion of its counsel, legally compelled
to disclose the Confidential Information so requested or else stand liable
for
contempt or suffer other censure or penalty, the Receiving Party or that
Representative may, without liability hereunder, disclose to such other Person
only that portion of the Confidential Information which the Receiving Party's
counsel advises is legally required to be disclosed. The Receiving Party
will,
in addition, exercise its best efforts to preserve the confidentiality of
the
Confidential Information so "disclosed and cooperate with the Disclosing
Party
to obtain an appropriate protective order or other reliable assurance that
confidential treatment will be accorded to the Confidential Information so
disclosed.
4.
The
Receiving Party will use at least the same degree of care to avoid the
publication, disclosure, reproduction or other dissemination of the Confidential
Information as the Receiving Party employs with respect to its own valuable,
proprietary information which it protects from unauthorized publication,
disclosure, reproduction or other dissemination, but no less than a reasonable
degree of care.
5.
The
Receiving Party will not conduct any inquiries regarding the Confidential
Information or a Possible Transaction with any of the Disclosing Party's
stockholders, officers, members, managers, directors, employees, affiliates,
suppliers, proposed business partners or customers or with others having
business relationships with the Disclosing Party except through Representatives
of the Disclosing Party designated in writing by the Disclosing Party from
time
to time.
6.
All
documents, drawings, records, data bases, programs and other physical media
of
expression incorporating or containing any Confidential Information which
the
Disclosing Party furnishes to the Receiving Party are acknowledged to be
the
property of the Disclosing Party and will be promptly surrendered to the
Disclosing Party upon the expiration or termination of the discussions between
ABC and AeroGrow or any business relationship which may be established between
ABC and AeroGrow. In addition, except to the extent the Receiving Party is
advised by counsel that such action is prohibited by law, the Receiving Party
will also destroy all copies, summaries and notes thereof made by the Receiving
Party and all analyses, compilations, studies, reports or other documents
or
materials which are prepared by the Receiving Party or its advisors and which
contain or reflect any Confidential Information which the Disclosing Party
furnishes to the Receiving Party. After such expiration or termination the
Receiving Party will make no further use of any of these materials, and if
so
requested by the Disclosing Party, a duly authorized officer of the Receiving
Party will deliver to the Disclosing Party a certificate indicating that
the
requirements of the immediately preceding two sentences have been satisfied
in
full. The foregoing will apply regardless of the reasons for or circumstances
surrounding such expiration or termination.
7.
Except
as
otherwise provided in any binding agreement between ABC and AeroGrow, all
designs, methods, processes, developments, ideas and/or inventions directly
related to, or usable in, the Disclosing Party's business which the Receiving
Party conceives, develops or reduces to practice, or causes to be conceived,
developed or reduced to practice, as a result of the Receiving Party's access
to
the Confidential Information will be the Disclosing Party's sole property.
Upon
demand and without any further consideration the Receiving Party will confirm
such ownership by executing assignments of all of the Receiving Party's rights
therein to the Disclosing Party.
8.
The
Receiving Party understands that the Disclosing Party makes no representations
or warranties as to the accuracy or completeness of any Confidential Information
disclosed to the Receiving Party, and the Receiving Party agrees that neither
the Disclosing Party nor any of its officers, directors, stockholders, members,
managers, employees, agents or attorneys or controlling Persons within the
meaning of Section 20 of the Securities Exchange Act of 1934 will have any
liability to the Receiving Party arising from the Receiving Party's use of
the
Confidential Information, except if the Disclosing Party is held to be in
breach
of this Agreement.
9.
The
Receiving Party agrees that money damages will not be a sufficient remedy
for
any breach of this Agreement by the Receiving Party or any of its
Representatives and that in addition to all other remedies which may be
available, the Disclosing Party will be entitled to seek specific performance
and injunctive or other equitable relied without bond, as a remedy for any
such
breach or threatened breach.
10.
To
the
fullest extent permitted by applicable law, rule or regulation, all of the
covenants and agreements contained in this Agreement will survive the
termination of any discussions between ABC and AeroGrow or the termination
or
expiration of any business relationship which may hereafter be established
between ABC and AeroGrow, and will also survive any definitive agreements
entered into by ABC and AeroGrow, in each such case for a period of three
(3)
years from the date hereof, unless and only to the extent that such definitive
agreements expressly supersede the covenants and agreements contained herein;
provided, however, that the provisions of this Agreement relating to the
preservation of the confidentiality of the Confidential Information and each
party's obligation to reimburse the other for all costs incurred by the other
in
connection with the successful enforcement of this Agreement as to such matters
will, in any event, survive for so long as the Confidential Information remains
confidential.
11.
This
Agreement supersedes all previous agreements, written or oral, relating to
the
above subject matter, and may be modified only by a written instrument duly
executed by ABC and AeroGrow.
12.
In
the
event of any litigation between ABC and AeroGrow in connection with this
Agreement, the unsuccessful party to such litigation will pay to the successful
party therein all reasonable costs and expenses, including but not limited
to
reasonable attorneys' fees incurred therein by such successful party, which
costs, expenses and attorneys' fees shall be included as a part of any judgment
rendered in such action in addition to any other relief to which the successful
party may be entitled.
13.
All
clauses and covenants contained in this Agreement are severable and in the
event
any of them is held to be invalid by any court, this Agreement will be
interpreted as if such invalid clauses and covenants were not contained
herein.
14.
This
Agreement will be construed according to the laws of the State of Colorado,
without regard to its principles concerning conflicts of law. Any suit brought
hereon must be brought in the state or federal courts sitting in the County
of
Denver, Colorado. ABC and AeroGrow hereby waive any claim or defense that
such
forum is not convenient or proper.
ACKNOWLEDGED
AND AGREED
AS
OF
_______________:
ACKNOWLEDGED
AND AGREED
AS
OF
_______________, 20____:
AEROGROW
INTERNATIONAL, INC.
F.
Wiedemann, VP
EXHIBIT
10.19
FORM
OF
STATEMENT OF CONFIDENTIALITY,
NON-DISCLOSURE
AND NON-COMPETE
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Address
|
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City
|
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State
|
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Zip
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Telephone
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Work
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Mentor
Capital Consultants, Inc. (MentorCap) and its subsidiary, AeroGrow
International, Inc., (AeroGrow) may be sharing critical, confidential, product
information with you on its products and its marketing/distribution plans
for
these products.
Understanding
this, I, ___________________________________________
and
my
successors, employees, officers, affiliated consultants and agents, agree
to
respect the confidentiality of AeroGrow's products, product concepts and
marketing/distribution plans; agreeing not to sell, assign, or disclose any
confidential information to any other person, organization or corporation
without our prior written permission.
In
addition, I agree not to compete directly or indirectly with AeroGrow and
its
successors and assigns by owning, managing, operating, consulting or being
employed in a business substantially similar to, or competitive with, AeroGrow's
business.
Upon
request, I agree to immediately return to MentorCap any models, plans,
prototypes, photos, blueprints or drawings provided by MentorCap.
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X
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Date
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Consultant
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X
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Mentor
Capital Consultants, Inc.
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Representative
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EXHIBIT
10.20
July
15,
2005
Randy
Seffren
Chief
Marketing Officer
AeroGrow
International, Inc.
900
28th
Street, #201
Boulder,
Colorado 80303
We,
at
Patrice Tanaka & Company, Inc. ("PT&Co,"), are very much looking forward
to providing public relations and communications services to AeroGrow
International, Inc. ("you"). Since you have requested that we commence work
on
certain projects prior to the execution of our Formal Agreement, we are setting
forth certain basic terms (mainly related to your payment obligations) to
govern
our interim relationship as follows:
We
will
become your official public relations agency of record on July 1,
2005.
Our
services to you will initially include mutually agreed upon short-term
projects.
The
charges for services provided by PT&Co. are based on hourly rates of the
various members of the professional team assigned to your account You will
be
invoiced for our services on a monthly basis and you agree to make payment
of
such invoices upon receipt. You agree that our charge for services of the
type
and scope previously discussed will average $15,000 per month from Aug 1,
2005
through the launch, with 75% payable in cash and 25% payable i n .AeroGrow
stock. Mutually agreed upon changes or additions to your project will be
budgeted separately, and time spent on any unforeseen crisis situations will
be
pre-approved and billed on an hourly basis at our current billing rates as
set
fort in the attached Schedule A.
You
understand that the public relations projects will entail, in addition to
the
fees provided for our services, out-of pocket expenses. Until our Formal
Agreement is finalized, wherever possible you will contract directly with
the
outside vendors incidental to your projects and you will pay them directly.
In
all other cases, you agree to make prompt payment to us upon receipt of our
invoices for: (a) pre-approved printing, mailing, artwork, photography, filming
and other services and materials at their net casts plus an administrative
fee
of fifteen (15%) ; and (b) other out-of-pocket items such as postage,
overnight delivery, travel, luncheons with editors, telephone calls, faxes,
messengers and overnight courier services incidental to the performance of
our
services, which will be billed to you at their net costs with no administrative
fee. We will provide to you copies of supplier invoices of the type described
in
subparagraph (a).
In
order
that we might plan for the efficient use of our staff and that you might
plan
for your budgetary needs, each of us agrees to give to the other no less
them
sixty (60) days notice of intention to end our working relationship (except
that
we reserve the right to immediately cease performing services for you in
the
event that all fees and expenses provided for in this interim agreement have
not
been promptly paid). Notwithstanding any termination, you agree to pay for
all
our fees and expenses through the date of termination. Although it is our
mutual
intention to enter into a Formal Agreement as promptly as possible, this
interim
agreement will govern our relationship until such time.
You
represent that this interim agreement which, essentially, sets forth your
obligation to pay for services provided to you and fees incurred on your
behalf
is binding on your company.
You
agree
that any dispute relating to the interpretation or performance of this interim
agreement which cannot be amicably resolved shall be resolved at the request
of
either party through binding arbitration conducted under the auspices of
the
American Arbitration Association in New York City pursuant
to
principles of New York law.
Please
indicate your agreement with all of the above by executing and returning
both
copies of this letter to the undersigned.
Very
truly yours,
PATRICE
TANAKA & COMPANY, INC.
By:
__________________________________________
Ellen
LaNicca Albanese
President
& C o-Founder
ACCEPTED
AND AGREED TO THIS
15
Day of
June, 2005
AeroGrow
International, Inc.
By:
_______________________________________
Randy
Seffren
Vice
President
Chief
Marketing Officer
SCHEDULE A
Patrice
Tanaka & Company, Inc.
Executive
Billing Rates
|
Position
|
|
Rate
|
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CEO
and Creative Director
|
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$
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300
|
|
|
|
|
|
|
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Branding
Director
|
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$
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300
|
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President
|
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$
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275
|
|
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Senior
Vice President
|
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$
|
225
|
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Vice
President
|
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$
|
200
|
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Senior
Counselor
|
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$
|
180-$240
|
|
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Management
Supervisor
|
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$
|
170
|
|
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Account
Supervisor
|
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$
|
150
|
|
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Senior
Account Executive
|
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$
|
135
|
|
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Account
Executive
|
|
$
|
120
|
|
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Assistant
Account Executive
|
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$
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100
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Account
Administrator
|
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$
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75
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EXHIBIT
10.21
RESPOND2
PRODUCTION
AGREEMENT
This
Agreement is effective the 3rd day of October, 2005, by and between Respond2,
Inc., an Oregon Corporation, (hereinafter called Respond2) and AeroGrow
International, Inc., a Nevada Corporation (hereinafter called
Purchaser).
The
parties are desirous of entering into this Agreement for Respond2
to:
Provide
certain personnel, equipment services and/or materials for creative development
and production of a Long Form Infomercial and Short Form DRTV Commercials
(hereinafter called "Work") for Purchaser.
NOW,
THEREFORE, IN CONSIDERATION OF THE PROMISES AND THE MUTUAL COVENANTS of the
parties hereto, IT IS HEREBY AGREED:
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1.
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Production
.
Subject to Purchaser's performance of its obligations hereunder,
Respond2
shall be responsible for the production of the Work specialty created
to
advertise, promote and sell the AeroGrow Kitchen Garden. Respond2
represents and warrants that it will produce the Work in a workmanlike
manner according to the reasonable standards observed by professionals
in
the industry. The work shall conform to all applicable FCC technical
and
broadcast standards, and Electronic Retailing Association guidelines.
Respond2 shaft produce and complete the Work for the sum set forth
in the
Production Budget, which shall be mutually approved by both parties.
Respond2 shall provide all of the production elements set, including
a
production crew and all necessary personnel and equipment for filming
and
or videotaping the Work. On or before completion and delivery of
the Work,
Respond2 shall provide to Purchaser all documents evidencing Purchaser's
ownership of all elements of the Work, including any executed licensee
and
releases. Respond2 shall be responsible for all final editing and
post-production services necessary to prepare the Work for television
airing. Such services shall include delivery to Purchaser of a
completed
beta SP master videotape of the Work, suitable for insertion of
such
product-ordering information, as Purchaser may desire. Final editing
and
post-production services shall be subject to the approval of Purchaser
and
the Work shall not be deemed completed and delivered until it has
been
approved by Purchaser, which approval shall not be unreasonably
withheld.
Television airing of the Work in any market will be construed to
be
Purchaser's acceptance of the Work.
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2.
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Scripting/Creative
.
Respond2 and its affiliates, employees, officers, directors, shareholders.
contractors. etc. have no obligation to generate or verify the
truth of
information, facts, claims, testimonials, product comparisons,
representations, opinions, endorsements, impressions, warranties
or any
other information contained in the script and all other content
of the
Work, all such verification to be the exclusive responsibility
of
Purchaser.
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3.
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Payment
.
Purchaser agrees to pay Respond2 production costs, in the form
of cash and
AeroGrow stock. Cash will be paid based upon the terms detailed
below.
Stock certificates will be issued as they are made available purchasers
by
the
Purchaser's accounting and legal
team.
|
Scripting/Creative
Fee--A $30,000 Scripting/Creative Fee is due upon signing of this contract
to be
paid as follows: $15,000.00 cash and $15,000.00 AeroGrow stock,
Production
Fee--Once Purchaser approves overall estimated costs, Respond2 will invoice
Purchaser twice monthly for estimated production costs within that specific
time
period. Production costs will be estimated at the beginning of each month
and
will be submitted to Purchaser for review and approval, and such review and
approval will occur within one business day. Respond2 will invoice Purchaser
on
the 1st and the 15th of each month based upon the estimated and approved
costs.
Purchaser will have 15 day terms for all invoices submitted. Respond2 will
true
up actual costs against estimated and invoiced costs on a monthly basis.
All
invoices submitted will include and specifically detail a 33% mark-up over
actual costs, defined as "Respond2 profit." Purchaser will provide AeroGrow
stock in exchange for Respond2 profit.
AeroGrow
stock, the non-cash amounts listed above that are payable in the form of
investment units, the terms and restrictions on the investment units closely
emulate those detailed in the Private Placement Memorandum ("PPM") in AeroGrow
International, Inc. provided to Respond2. Note, that the debt
offering/conversion option stated in the PPM is not available to Respond2.
The
investment units shall be computed at a 20% discount from market value as
reflected in the PPM. Respond2 shall receive the investment units which are
restricted from trading for 6 months from the active date of the stock, and
shall also be entitled to participate in the bonus structure as detailed
in the
PPM.
Purchaser
shall receive all payments listed above and the actual investment unit
certificates prior to delivery of the final Work to Purchaser.
All
Purchaser-requested travel, not included in the production budget, will be
invoiced to Purchaser, at cost. A finance charge of 1.5% per month will be
charged on all past due invoices. Any payments made by Purchaser in excess
of
amounts due and owing to Respond2 hereunder, or any credits in favor of
Purchaser hereunder, may be applied at any time, with notice to Purchaser,
against any amounts past due and owing by Purchaser to Cmedia, LLC, Production
West, Inc., or any other entity identified to Purchaser as an affiliate of
Respond2.
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4.
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Changes
.
Change orders will be documented for any Purchaser-requested deviation
in
any portion of the Work once detailed and approved by Purchaser.
These
include, but are not limited to, additional charges due to script
changes
(outside of initial script development and its inherent revisions),
production enhancements, location change or other changes. Respond2
is not
required to make any such changes until Purchaser has approved
in writing
all such additional charges, which shall be reasonable. A maximum
of two
(2) rough-cut revisions will be included in the production costs
included
in paragraph 3. Any additional rough-cut revisions will require
a change
order at an agreed upon additional
charge.
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5.
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Intellectual
Property Rights
.
Provided that Purchaser shall have made all payments in Respond2
required
under this Agreement, all right, title and interest in and to the
materials, work product, and entire editorial, visual, audio and
graphic
content of the Work created pursuant to this Agreement, including,
without
limitation, (i) all creative and sales outlines; (ii) all videos;
(iii)
all scripts, raw video footage and film stock, shot film and video
footage, outtakes, film negatives and master videotapes created
hereunder
and the performances contained thereon; (the foregoing hereinafter
collectively referred to as "Intellectual Property") shall, as
between
Purchaser and Respond2, be and remain the sole property of Purchaser.
All
Intellectual Property supplied or created by Respond2 end/or persons
and
firms engaged by Respond2 in connection with the creation of the
Work are
agreed to be and shall be considered a "work made for hire" for
Purchaser.
If for any reason any such Intellectual Property is found not to
be a
"work made for hire," Respond2 agrees to assign and hereby assigns
all
rights, title and interest worldwide in such Intellectual Property
to
Purchaser. Respond2 represents and warrants that it owns and has
the right
to assign all Intellectual Property created pursuant to this Agreement
and
will obtain all necessary licenses end releases. Purchaser retains
full
ownership of such Intellectual Property after termination of this
Agreement.
|
Respond2
shall have the right to receive one (1) copy of the Work, without payment,
to be
used in its library for reference, for demonstration purposes to other clients
and potential clients, and for entry of the Work in shows and festivals to
demonstrate and display Works it has produced.
As
producer of the infomercial, Respond2 shall have the right to exhibit its
logo,
company name, and "Portland, Oregon" in the infomercial, but not spots, for
a
period not to exceed five seconds at the end of the work on broadcast
versions.
|
6.
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Music
.
To the extant that Respond2 is requested by Purchaser to supply
music for
the Work, the following shall
apply:
|
|
|
a.
|
If
Respond2 creates or causes the creation of original music, Purchaser
and
Respond2 shall share all ownership of all right, title and interest
in and
to such music shall share the publishing rights and shall share
the
publishing royalties in connection with such music on a 50/50 basis.
Notwithstanding anything to the contrary above, Respond2 shall
grant to
Purchaser a non-exclusive, perpetual, royalty-free license to use,
reproduce, create derivative works, distribute, and to perform
and display
publicly such music in connection with the Work. Purchaser or its
authorized media buyer will provide Respond2 a monthly media buy
list
which shall be used for the exclusive and confidential purpose
of
obtaining music royalties. If music is obtained for the Work pursuant
to
this paragraph, the cost of obtaining such music shall be included
in the
Production Budget.
|
|
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b.
|
If
Purchaser provides Respond2 with original music for use in the
Work,
Purchaser alone shall be wholly responsible for all costs and expenses
in
connection therewith including without limitation, licenses (including
music synchronization and master use licenses), releases, royalties,
residuals, contracts, payouts and insurance. Purchaser shall retain
all
right, title and interest in and to such music; shall retain one
hundred
percent (100%) of the publishing rights and shall be entitled to
one
hundred percent of the publishing royalties in connection to the
music.
|
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c.
|
If
Purchaser requests that Respond2 obtain prerecorded music not previously
owned by either party, Respond2 shall obtain such music on a license
basis
(with the terms of such license to be subject to Purchaser's approval).
Any costs or expenses incurred to obtain the license will be included
in
the Production Budget.
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7.
|
Termination
of Agreement
.
Either party may terminate the Agreement immediately if the other
party
breaches any material term of this Agreement, and such material
breach
remains uncured for a period of thirty (30) days, as determined
by the
notifying party, after the party allegedly in breach has received
written
notice of the other's objections. Upon termination of this Agreement,
Purchaser shall pay Respond2 for all work done to date and Respond2
shall
return to Purchaser any unearned advances already paid and shall
deliver
to Purchaser all Work product created under this
Agreement.
|
|
8.
|
Cancellation
and Postponement Policy
.
If Purchaser cancels the production within thirty (30) days of
the
scheduled shoot date, for any reason, Purchaser agrees to pay Respond2
for
work done to date plus an additional cancellation fee of 10% of
the
original production budget. If Purchaser cancels the production
within
fourteen (14) days of the scheduled shoot date, for any reason,
Purchaser
agrees to pay Respond2 for work done to date plus an additional
cancellation fee of 25% of the original production budget. If Purchaser
postpones the production more than thirty (30) days beyond the
original
scheduled shoot date, Purchaser agrees to pay Respond2 for work
done to
dale plus an additional cancellation fee of 25% of the original
production
budget.
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|
9.
|
Contingency
.
The 10% contingency overage is for unforeseen force majeure events,
including increased preproduction, production and or editing costs
due to
weather delays, talent illness, equipment failures, "Acts of God,"
or
similar unavoidable occurrences. Any potential contingency will
be brought
to Purchaser's attention upon discovery. Contingency overages are
billed
without mark-up.
|
|
10.
|
Indemnification
.
Purchaser will at all times defend, indemnify and hold harmless
Respond2
and its approved successors and assigns, affiliates, officers,
directors,
shareholders, employee, agents and independent contractors from
and
against any and all claims (whether express or implied), damages,
liabilities, costs and expenses, including reasonable legal expenses
and
reasonable attorneys' fees arising out of information, facts, claims,
testimonials, product comparisons, representations, opinions,
endorsements, impressions, warranties or other information expressed
and/or implied, or any other content in the Work (collectively,
the
"Content") including but not limited to all Content regarding Purchaser's
products or services, or the purchase or use thereof by consumers
or
otherwise, or any direct or indirect reference to any other person,
entity, instrumentality or product; and (ii) any inconsistency
with, or
any breach or alleged breach by Purchaser of, any warranty, representation
or agreement made by Purchaser herein. Purchaser shall be promptly
notified of any such claim, action or demand and shall have the
right to
assume control of the defense of any such claim, action or demand
provided
that Purchaser establishes to the reasonable satisfaction of Respond2
that
it can satisfy any such monetary judgment, claim, action or demand
if it
fails to prevail in such defense. No monetary settlement as to
which
indemnification is sought shall be made without the approval of
Purchaser
and the decision of Purchaser with respect to settlement of any
claim,
action or demand shall be final.
|
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|
Respond2
will at all times defend, indemnify and hold harmless Purchaser
and its
approved successors and assigns, officers, directors, shareholders,
employees, agents and independent contractors from and against
any and all
claims, damages, liabilities, costs and expenses, including reasonable
legal expenses and reasonable attorneys' fees arising out of (i)
any
third-party claim that the material produced by Respond2 for Purchaser
infringes or violates a copyright, trademark, right of publicity
or other
intellectual property right; (ii) the production itself of the
Work
including, without limitation, claims by persons, firms and corporations
engaged by Resond2
,
directly or indirectly, to provide goods and services in connection
with
the production of the Work, but Respond2 has no duty to defend,
indemnify
or hold harmless Purchaser from any claim made by consumers or
any third
party regarding Purchaser's products or services or other Work
Content;
and (iii) any breach by Respond2 of any warranty, representation
or
agreement made by Respond2 herein. Respond2 shall be promptly notified
of
any such claim, action or demand and shall have the right to assume
control of the defense of any such claim, action or demand provided
that
Respond2 establishes to the reasonable satisfaction of Purchaser
that it
can satisfy any such monetary judgment, claim, action or demand
if it
fails to prevail in such defense. No monetary settlement as to
which
indemnification is sought shall be made without the approval of
Respond2
and the decision of Respond2 with respect to settlement of any
claim,
action or demand shall be final.
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The
foregoing indemnification provisions shall survive any expiration
or
termination of this Agreement.
|
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11.
|
Fee
for Production Scheduling Changes
.
Upon Purchaser's acceptance of this Agreement, Respond2 will provide
a
Production Schedule with specified start and completion dates for
various
phases of the production. After Purchaser's signed acceptance of
a
Production Schedule, Purchaser agrees to pay for any costs associated
with
scheduling changes implemented on Purchaser's request. Fees for
scheduling
changes will be based on documented costs of scheduling changes
plus a
Respond2 20% mark-up.
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12.
|
Representations
and Warranties
.
|
|
|
a.
|
Each
party hereby represents and warrants that it has the right and
ability to
enter into this Agreement, and the individual executing this Agreement
is
fully authorized to bind it without additional
approval.
|
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b.
|
Each
party represents the performance of the obligations assumed herein
will
not infringe, interfere with or impair third parties' intellectual
or
proprietary rights.
|
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|
c.
|
Purchaser
hereby represents and warrants that to Purchaser's knowledge, the
publication, broadcast and exploitation of the Advertisements will
not
constitute false advertising, infringe any third party's rights
or violate
any laws, rules or customs.
|
|
|
d.
|
Unless
otherwise mutually agreed to by both parties in writing, Purchaser
agrees
not to hire or solicit the employment of any personnel of Respond2,
or any
of its affiliated companies, involved with the activities under
this
Agreement during the term of this Agreement and for a period of
three (3)
years thereafter.
|
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|
e.
|
It
Is the duty and responsibility of Purchaser to ascertain and verify
that
all claims made about the products being sold by Purchaser are
accurate,
complete and truthful, and are sufficiently supported by substantiation
as
required by any applicable law, rule or regulation, even if such
claims
were suggested to Purchaser by Respond2. Purchaser shall also be
responsible to assure that the products offered are safe for use
by
consumers when used in accordance with instructions provided by
Purchaser
to the consumer.
|
|
13.
|
Notices
.
All notices, requests, instructions, consents, approvals and other
communications required or desired to be sent hereunder shall be
in
writing and shall be deemed given (i) on the day sent if transmitted
by
facsimile, (ii) the next business day if sent by nationally recognized
overnight carrier service, and (iii) three (3) business days later
if
deposited in certified or registered U.S. mail, return receipt
requested.
All notices shall be addressed to the parties as
follows:
|
|
If
to Purchaser:
AeroGrow
International Inc.
900
28th St #201
Boulder
CO 80303
Attn:
Randy Seffren
Fax:
847-267-8040
|
If
to Respond2:
Respond2
Inc
207
NW Park Ave
Portland,
OR 97209
Attention:
Tim O'Leary
Fax:
503-278.4096
with
a copy to.
Davis
Wright Tremaine
1300
SW 5th Ave Suite 2300
Portland
OR 97201
Attn:
Milton Stewart
Fax
503-778-5299
|
|
14.
|
Waiver
of Breach
.
The failure of a party at any time to enforce any provision of
this
Agreement shall not be deemed or construed to be a waiver thereof
or of
any other provision hereof, whether similar or dissimilar, or of
any
subsequent breach of any provision or to affect the right of a
party to
thereafter enforce each and every provision hereof. No waiver of
any
breach of any of the provisions of this Agreement shall be effective
unless set forth in a written instrument signed by the party to
be
charged.
|
|
15.
|
Assignment
.
Neither party may assign this Agreement without the prior written
consent
of the other. Any permitted assignee shall assume all obligations
of its
assignor under this Agreement.
|
|
16.
|
Mediation
.
Should any dispute (other than an action for copyright or trademark
infringement) arise between the parties to this Agreement, it is
agreed
that the parties will enter into mediation via a mediation service
selected by mutual agreement of the parties. The location of such
mediation shall be determined by mutual agreement of the parties,
but if
the parties cannot agree, the mediation will take piece in Portland,
Oregon. Each party shall pay one half of the fees charged by such
mediation service and shall bear its own attorney fees and costs
incurred
in the preparation and conduct of the mediation. Both parties agree
to
exercise their best efforts in good faith to resolve all disputes
in
mediation. Any claim shall be submitted to mediation within six
months
after the claim arose.
|
|
17.
|
Arbitration.
In the event that mediation is not successful, the parties hereby
agree to
submit the dispute for binding arbitration to one arbitrator mutually
agreed upon by the parties. The arbitration shall be governed by
the rules
and procedures of the American Arbitration Association then in
affect and
by substantive Oregon law. The location of the arbitration shall
be
determined by mutual agreement of the parties, but if the parties
can not
agree, arbitration will take place in Portland, Oregon. Any judgment
upon
the award rendered pursuant to such arbitration may be entered
in any
court having jurisdiction thereof. No copyright or trademark infringement
or other intellectual property disputes shall be submitted to
arbitration.
|
|
18.
|
Entire
Agreement
.
This Agreement supersedes any and all prior oral and written agreements,
understandings, representations, covenants and warranties in regards
to
the Work. This Agreement may not be changed, modified or altered
except in
writing and signed by the parties
hereto.
|
|
19.
|
Attorneys
Fees
.
If either party hereto retains the services of an attorney to enforce
any
term, condition or covenant of this Agreement and enters into an
arbitration as required by this Agreement, the prevailing party
shall be
entitled to, from the losing party, reasonable attorneys fees and
its
costs and disbursements to prosecute said
arbitration.
|
|
20.
|
Force
Majeure
.
Either party shall be relieved of their material obligations hereunder
in
the event that they are prevented from performing because of any
act or
circumstance beyond their reasonable control including, but not
limited
to, labor disputes, fines, earthquakes, wars, civil uprisings,
floods,
national calamities, break down of machines, regulations, laws,
strikes,
and transportation delay; provided, however, that the provisions
of this
Section 17 shall not apply to Purchaser's payment obligations
hereunder.
|
|
21.
|
Relationship
.
Nothing contained in this Agreement creates a partnership, joint
venture
or similar business relationship between Respond2 and Purchaser.
Respond2
is acting solely as Purchaser's independent service
provider.
|
|
22.
|
Agreement
Construed as if Jointly Prepared
.
This Agreement shall not be construed against the party preparing
it but
shall be construed as if all the parties jointly prepared the Agreement,
and any uncertainty or ambiguity shall not be interpreted against
any one
party.
|
IN
WITNESS WHEREOF, the parties have caused this Agreement to be signed, in
duplicate, effective on the date and year dated below.
|
Respond2,
Inc.
|
|
AeroGrow
International, Inc.
|
|
|
|
|
|
|
|
|
By:
David J. Fallon
|
|
By:
Randy Seffren
|
|
Title:
CFO
|
|
Title:
Chief Marketing Officer
|
|
Date:
10-3-05
|
|
Date:
October 3, 2005
|
SUBSCRIPTION
AGREEMENT
THIS
SUBSCRIPTION AGREEMENT (the “
Agreement
”)
is
made as of this ___ day of ____________ 2006 by and among Aero Grow
International, Inc., a Nevada corporation (the “
Company
”)
and
the investor identified on the signature page to this Agreement which Agreement
is one of like agreements with other investors participating in an offering
of
securities described herein
(the
“
Investors
”
and
individually an “
Investor
”).
RECITALS
WHEREAS,
upon the terms and conditions and subject to the provisions hereinafter set
forth, the Company desires to issue and sell and each Investor desires to
purchase, units (
“Units”
),
each
unit consisting of one share of common stock (
“Common
Stock”
)
and one
common stock purchase warrant (
“Warrant”
)
which
will be exercisable for one share of Common Stock (
“Warrant
Share”
or
“Warrant
Shares”
).
The
Unit price will be $5.00. The Warrants will be exercisable for five years from
the Closing Date at an exercise price of $6.25 per share. The offering of the
Units is being made on a “$5,000,000 minimum and $12,000,000 maximum, best
efforts basis.” There will be one closing of the offering. The Warrants will be
in substantially the form attached to this Agreement as
Exhibit
A
.
The
Common Stock and the Warrants and the common stock issuable upon exercise
thereof are collectively referred to herein as the “
Securities
.”
Whereas,
the offering is being made through Keating Securities LLC (“Keating”) and other
broker-dealers, foreign banks, dealers and institutions selected by Keating
(“Participating Agents”). Keating and the Participating Agents will receive cash
compensation from the Company, and Keating will be issued placement agent
warrants (
“Agent
Warrants”
)
as more
fully described in the Private Place Memorandum dated as of February 6, 2006
(
“Memorandum”
).
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:
1.
Accredited
Investors
.
This
offering is limited to accredited investors (whether residents or entities
within or without the United States) as defined in Section 2(15) of the
Securities Act of 1933, as amended (
“Securities
Act”
),
Regulation D and Rule 501 promulgated thereunder, and is being made without
registration under the Securities Act in reliance upon certain exemptions
including, without limitation, the exemptions under Sections 3(b), 4(2) and/or
4(6) of the Securities Act, Regulation S promulgated under the Securities Act,
Rule 506 of Regulation D promulgated under the Securities Act and applicable
state securities laws. As indicated by the responses on the signature page
hereof, the Investor is an accredited investor within the meaning of Section
2(15) of the Securities Act and Rule 501 promulgated thereunder.
2.
Purchase
and Sale of the Units
.
Subject
to the terms and conditions of this Agreement, each Investor agrees to purchase
at the Closing (as defined below) and the Company agrees to sell and issue
to
each Investor, the Units, in the manner set forth in
Section
2
hereof,
in the number set forth on the signature page hereto, at $5.00 per Unit (the
“
Purchase
Price
”).
The
Units are offered for sale in a private placement in accordance with the terms
set forth in the Memorandum, as amended or supplemented from time to time,
which
has been delivered to each Investor and of which the Investor acknowledges
receipt. The Common Stock and Warrants shall have the terms as set forth in
the
Memorandum, in this Agreement and in Exhibit A. In the event of any
inconsistency between the terms of the Common Stock and Warrants set forth
herein and in the exhibits hereto and the terms set forth in the Memorandum,
the
terms contained herein and in the exhibit hereto shall supercede and be
controlling.
3.
Terms
of Purchase and Sale of the Common Stock
.
The
closing of the transactions contemplated hereby (the “
Closing
”)
shall
take place on or before the second full business day after the Notice Date
(as
such term is defined in the Placement Agreement dated as of February 6, 2006
(the “
Placement
Agreement
”),
between the Company and Keating Securities, LLC (the “
Placement
Agent
”)),
at
the offices of the Placement Agent, or at such other time and place as the
Company and the Placement Agent may agree upon. Contemporaneously with the
delivery of this Agreement, each Investor shall deliver to Steele Street State
Bank, Denver, Colorado (the “
Escrow
Agent
”)
the
Purchase Price by wire transfer of immediately available funds pursuant to
wire
transfer instructions given to the Investor by the Company and/or the Placement
Agent. At the Closing, the Escrow Agent shall deliver to the Company the
Purchase Price by wire transfer of immediately available funds pursuant to
wire
transfer instructions given to the Escrow Agent by the Company and the Placement
Agent. As soon as reasonably practicable following Closing, the Company shall
deliver to each Investor the duly executed certificates representing the Common
Stock and Warrants, each registered in the name of the Investor. Notwithstanding
the foregoing, the obligations of the Company and each Investor hereunder are
subject to the Company’s receipt of aggregate subscriptions for a minimum of
$5,000,000
in
aggregate gross proceeds for the Units on or prior to March 1, 2006 (or such
closing date as may be agreed by the Company and the Placement Agent), which
date may be extended by the Company and the Placement Agent up to 30 additional
days, without notice to the Investor. The subscription funds will be held in
an
Escrow Account maintained by the Escrow Agent under the name Keating - AeroGrow
Escrow Account (Account Number 10003975). Prior to the earlier of the Closing
or
the termination date of the Offering, the subscription account will be held
in a
non-interest bearing segregate account, subject to the terms and conditions
herein and a separate escrow agreement among Keating, the Company and Escrow
Agent.
The
Company and Keating have the right to reject this subscription, in whole or
in
part for any reason and at any time prior to the Closing, notwithstanding prior
receipt by the Investor of notice of acceptance of the Investor’s subscription.
In the event the Investor’s subscription is rejected, which may be for any
reason, the subscription payment will be returned promptly to the Investor,
without interest or deduction, and this Subscription Agreement will have no
force or effect. The Units subscribed for herein will not be deemed issued
to or
owned by the Investor until one copy of this Subscription Agreement has been
executed by the Investor and countersigned by the Company, and the Closing
with
respect to the Investor’s subscription has occurred.
4.
Representations
and Warranties of the Company
.
In order
to induce the Investor to enter into this Agreement, the Company represents
and
warrants to the Investor the following:
4.1
Authority
.
The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Nevada. The Company is a registered foreign
corporation in all other jurisdictions in which it is either required to be
registered or where the failure to be registered would have a material adverse
effect on the operations or assets of the Company. The Company has all requisite
right, power, and authority to execute, deliver and perform this Agreement,
the
Warrants, the Placement Agreement, Agent Warrants and Escrow Agreement. The
Company has the requisite authorized capital and the power and authority,
without shareholder approval, and taken action to issue the shares of Common
Stock included in the Units and, to issue, upon exercise of the Warrants and
Agent Warrants in accordance with the terms of such agreements, the shares
of
Common Stock underlying such warrants, and all of such shares of Common stock,
when issued, will be deemed fully paid and non-accessible at the time of
issuance.
4.2
Subsidiary
.
The
Company has no direct or indirect subsidiaries.
4.3
Enforceability
.
The
execution, delivery, and performance of this Agreement, the Warrants, the
Placement Agreement, the Agent Warrants and the Escrow Agreement by the Company
have been duly authorized by all requisite corporate action. This Agreement,
the
Warrants, the Placement Agreement, the Agent Warrants and the Escrow Agreement
have been duly executed and delivered by the Company, and, upon their execution
by the Investor, shall constitute the legal, valid, and binding obligations
of
the Company, enforceable in accordance with the respective terms, except to
the
extent that enforceability is limited by bankruptcy, insolvency, reorganization,
or other laws relating to or affecting the enforcement of creditors’ rights
generally and by general principles of equity.
4.4
No
Violations
.
The
execution, delivery, and performance of this Agreement, the Warrants, the
Placement Agreement, the Agent Warrants and the Escrow Agreement by the Company
do not and will not violate or conflict with any provision of the Company’s
Articles of Incorporation or Bylaws and do not and will not, with or without
the
passage of time or the giving of notice, result in the breach of, or constitute
a default, cause the acceleration of performance, or require any consent under
(except such consents as have been obtained as of the date hereof), or result
in
the creation of any lien, charge or encumbrance upon any property or assets
of
the Company pursuant to, any material instrument or agreement to which the
Company is a party or by which the Company or its properties are bound, except
such consents as have been obtained as of the date hereof. Assuming the accuracy
of the representations and warranties of the Investor and all other purchasers
of the Common Stock in the offering contemplated by the Placement Agreement,
will be issued in accordance with a valid exemption from the registration or
qualification provisions of the Securities Act and any applicable state
securities laws (the “
State
Acts
”).
4.5
Capitalization
.
The
authorized capital stock of the Company consists of: (i)
75,000,000
shares of Common Stock and 20,000,000 shares of preferred stock, par value
of
$0.001 (“Preferred Stock”)
.
Immediately prior to the Closing, the Company will have 6,270,740 shares of
Common Stock issued and outstanding, and options, warrants, convertible
securities and commitments outstanding to purchase an aggregate of 2,717,546
shares of Common Stock, provided, however, that the foregoing includes
conversions of certain convertible notes of the Company only though January
31,
2006.
4.6
Financial
Statements.
The
audited financial statements for fiscal years ended December 31, 2003 and 2004
and unaudited financial statements for the nine-month periods ended September
30, 2004 and 2005, copies of which have been provided to the Investor as part
of
the Memorandum (collectively, the “
Financial
Statements
”),
respectively, fairly present in all material respects, on the basis stated
therein and on the date thereof, the financial position of the Company at the
respective dates therein specified and its results of operations and cash flows
for the periods then ended. Such statements and related notes have been prepared
in accord-ance with general-ly accepted accounting principles in the United
States applied on a consistent basis and audited in accordance with the
standards of the U.S. Public Company Accounting Oversight Board (“PCAOB”),
except as expressly noted therein.
4.7
No
Material Liabilities.
Since
September 30, 2005, the Company has not incurred any material liabilities or
obligations, direct or contingent, except in the ordinary course of business
and
except for liabilities or obligations reflected or reserved against on their
respective balance sheets as of September 30, 2005, and there has not been
any
change, or to the knowledge of the Company, development or effect (individually
or in the aggregate) that is or is reasonably likely to be, materially adverse
to the condition (financial or otherwise), business, prospects, or results
of
operations of the Company (a “
Material
Adverse Effect
”)
or any
change in the capital or material increase in the long-term debt of the Company,
nor has the Company declared, paid, or made any dividend or distribution of
any
kind on its capital stock.
4.8
No
Disputes Against the Company.
Except
as disclosed in this Memorandum, there is no material pending or, to the
knowledge of the Company, threatened (a) action, suit, claim, proceeding, or
investigation against the Company, at law or in equity, or before or by any
Federal, state, municipal, or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (b) arbitration
proceeding against the Company, (c) governmental inquiry against the Company,
or
(d) any action or suit by or on behalf of the Company pending or threatened
against others.
4.9
Approvals
.
(i) The
execution, delivery, and performance by the Company of this Agreement and the
Warrants, the Agent Warrants, the Placement Agreement and the Escrow Agreement,
(ii) the offer and sale of the Common Stock and Warrants, and (iii) the issuance
of the Common Stock and the Warrant Shares upon due exercise of the Warrants
require no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other than those consents that have
been
obtained and filings that have been made pursuant to applicable state securities
laws and post-sale filings pursuant to applicable state and federal securities
laws, which the Company undertakes to file within the applicable time
period.
4.10
Compliance
.
Except
as set forth in the Memorandum, the Company (i) is not in default under or
in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company),
nor
has the Company received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement, or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) is not in violation of any order of any court, arbitrator, or governmental
body, or (iii) is not or has not been in violation of any statute, rule, or
regulation of any governmental authority, including without limitation all
foreign, federal, state, and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and safety and
employment and labor matters, except in each case as could not, individually
or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect.
4.11
Patents
and Trademarks
.
The
Company has, or has rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses, and
other similar rights that are necessary or material for use in connection with
its business as described in the Memorandum and which the failure to have such
rights could, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect (collectively, the “
Intellectual
Property Rights
”).
The
Company has not received a written notice that the Intellectual Property Rights
used by the Company violates or infringes upon the rights of any Person. Except
as set forth in this Memorandum, to the knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another person of any of the Intellectual Property Rights,
except where such infringement could not have or reasonably be expected to
result in a Material Adverse Effect.
4.12
Transactions
With Affiliates and Employees
.
Except
as set forth in the Memorandum, none of the officers or directors of the Company
and, to the knowledge of the Company, none of the employees of the Company
is
presently a party to any transaction with the Company (other than for services
as employees, officers, and directors), including any contract, agreement,
or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director, or such employee or, to the knowledge
of the Company, any entity in which any officer, director, or any such employee
has a substantial interest or is an officer, director, trustee, or
partner.
4.13
Internal
Accounting Controls
.
The
Company maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management’s general
or specific authorization, and (iv) the recorded accountability for assets
is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act rules 13a-14 and 15d-14)
for
the Company and designed such disclosure controls and procedures to ensure
that
material information relating to the Company is made known to the certifying
officers by others within those entities .
4.14
Certain
Fees
.
Except
as may be due to the Placement Agent (and Participating Agents approved by
the
Placement Agent) from the Company under the Placement Agreement and except
for
an advisory fee of $350,000 payable to Placement Agent in connection with
advisory services rendered in connection with the Merger (as defined herein)
which advisory fee is payable only if a minimum of $10,000,000 of gross proceeds
are raised in the offering, no brokerage or finder’s fees or commissions are or
will be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank, or other person with respect
to the transactions contemplated by this Agreement. The Investor shall have
no
obligation with respect to any Placement Agent (or Participating Agent) fees
or
with respect to any claims (other than such fees or commissions owed by an
Investor pursuant to written agreements executed by the Investor which fees
or
commissions shall be the sole responsibility of such Investor) made by or on
behalf of other Persons for fees of a type contemplated in this Section 4 that
may be due in connection with the transactions contemplated by this Agreement.
4.15
Certain
Registration Matters
.
Assuming the accuracy of the Investor’s representations and warranties set forth
in
Section
6
,
no
registration under the Securities Act is required for the offer and sale of
the
Common Stock and Warrants by the Company to the Investor hereunder.
4.16
Investment
Company
.
The
Company is not, and is not an “affiliate” of, an “investment company” within the
meaning of the Investment Company Act of 1940, as amended.
4.17
No
Additional Agreements
.
The
Company does not have any agreement or understanding with any Investor with
respect to the transactions contemplated by this Agreement on terms that differ
from those set forth in this Agreement.
4.18
Disclosure
.
All
disclosure provided to the Investor regarding the Company, its businesses and
the transactions contemplated hereby, furnished by or on behalf of the Company
(including the Company’s representations and warranties set forth in this
Agreement) are true and correct and do not contain any untrue statement of
a
material fact or omit to state any material fact necessary in order to make
the
statements made therein, in light of the circumstances under which they were
made, not misleading.
5.
Reserved
.
6.
Representations
and Warranties of the Investor
.
In order
to induce the Company to enter into this Agreement, the Investor represents
and
warrants to the Company the following:
6.1
Authority
.
If a
corporation, partnership, limited partnership, limited liability company, or
other form of entity, the Investor is duly organized or formed, as the case
may
be, validly existing, and in good standing under the laws of its jurisdiction
of
organization or formation, as the case may be. The Investor has all requisite
individual or entity right, power, and authority to execute, deliver, and
perform this Agreement.
6.2
Enforceability
.
The
execution, delivery, and performance of this Agreement by the Investor have
been
duly authorized by all requisite partnership, corporate or entity action, as
the
case may be. This Agreement has been duly executed and delivered by the
Investor, and, upon its execution by the Company, shall constitute the legal,
valid, and binding obligation of the Investor, enforceable in accordance with
its terms, except to the extent that its enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium, or other laws relating
to or
affecting the enforcement of creditors’ rights generally and by general
principles of equity.
6.3
No
Violations
.
The
execution, delivery, and performance of this Agreement by the Investor do not
and will not, with or without the passage of time or the giving of notice,
result in the breach of, or constitute a default, cause the acceleration of
performance, or require any consent under, or result in the creation of any
lien, charge or encumbrance upon any property or assets of the Investor pursuant
to, any material instrument or agreement to which the Investor is a party or
by
which the Investor or its properties may be bound or affected, and, do not
or
will not violate or conflict with any provision of the articles of incorporation
or bylaws, partnership agreement, operating agreement, trust agreement, or
similar organizational or governing document of the Investor, as applicable.
6.4
Knowledge
of Investment and its Risks
.
The
Investor has knowledge and experience in financial and business matters as
to be
capable of evaluating the merits and risks of Investor’s investment in the
Common Stock and Warrants. The Investor is an investor in securities of
companies in the development stage and acknowledges that the Investor is able
to
fend for itself and bear the economic risk of the Investor’s investment,
including the complete loss thereof. Investor has a preexisting personal or
business relationship with the Company or one or more of its officers, directors
or other persons in control of the Company, or Investor has such knowledge
and
experience in financial or business matters that it is capable of evaluating
the
merits and risks of the investment in the Common Stock and the Warrants. If
an
entity, the Investor has not been organized for the purpose of acquiring Common
Stock and Warrants. The Investor understands that an investment in the Company
represents a high degree of risk and there is no assurance that the Company’s
business or operations will be successful. The Investor has considered carefully
the risks attendant to an investment in the Company, and that, as a consequence
of such risks, the Investor could lose Investor’s entire investment in the
Company.
6.5
Investment
Intent
.
The
Investor hereby represents and warrants that (i) the Common Stock and Warrants
are being acquired for investment for the Investor’s own account, and not as a
nominee or agent and not with a view to the resale or distribution of all or
any
part of the Common Stock or Warrants, and the Investor has no present intention
of selling, granting any participation in, or otherwise distributing any of
the
Common Stock or Warrants within the meaning of the Securities Act, (ii) the
Common Stock and Warrants are being acquired in the ordinary course of the
Investor’s business, and (iii) the Investor does not have any contracts,
understandings, agreements, or arrangements, directly or indirectly, with any
person and/or entity to distribute, sell, transfer, or grant participations
to
such person and/or entity with respect to, any of the Common Stock or Warrants.
The Investor is not purchasing the Common Stock and Warrants as a result of
any
advertisement, article, notice or other communication regarding the Common
Stock
or Warrants published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar or any other general
solicitation or general advertisement.
6.6
Investor
Status
.
Whether
or not the Investor is a United States resident, the Investor is an “accredited
investor” as that term is defined by Rule 501 of Regulation D promulgated under
the Securities Act and the information provided by the Investor in the
Investor’s Questionnaire, a copy of which is attached hereto as
Exhibit
B
,
is
truthful, accurate, and complete. The Investor is not registered as a
broker-dealer under Section 15 of the Exchange Act. The Investor has provided
or
will provide prior to the Closing, a United States tax identification number
or
a completed and signed copy of a W-8 United States Tax Form.
6.7
Disclosure
.
The
Investor has reviewed information provided by the Company in connection with
the
decision to purchase the Common Stock and Warrants, consisting of the Company’s
Memorandum which includes the Financial Statements. The Company has provided
the
Investor with all other information that the Investor reasonably has requested
in connection with the decision to purchase the Common Stock and Warrants and
is
readily available to the Company and does not breach any confidentiality
agreements or other restrictions and is not a trade secret of the Company.
The
Investor further represents that the Investor has had an opportunity to ask
questions and receive adequate answers from the Company regarding the business,
properties, prospects, and financial condition of the Company. All such
questions have been answered to the full satisfaction of the Investor. Neither
such inquiries nor any other investigation conducted by or on behalf of the
Investor or its representatives or counsel shall modify, amend, or affect the
Investor’s right to rely on the truth, accuracy, and completeness of the
disclosure materials and the Company’s representations and warranties contained
herein.
6.8
No
Registration
.
The
Investor understands that Investor may be required to bear the economic risk
of
Investor’s investment in the Company for an indefinite period of time. The
Investor further understands that (i) neither the offering nor the sale of
the Common Stock and Warrants has been registered under the Securities Act
or
any applicable State Acts in reliance upon exemptions from the registration
requirements of such laws, (ii) the Common Stock, the Warrants, and the
Warrant Shares (collectively, the “
Securities
”)
must
be held by the Investor indefinitely unless the sale or transfer thereof is
subsequently registered under the Securities Act and any applicable State Acts,
or an exemption from such registration requirements is available, (iii) except
as set forth in the registration rights provisions in this Agreement, the
Company is under no obligation to register any of the Securities on the
Investor’s behalf or to assist the Investor in complying with any exemption from
registration, and (iv) the Company will rely upon the representations and
warranties made by the Investor in this Subscription Agreement in order to
establish such exemptions from the registration requirements of the Securities
Act and any applicable State Acts.
6.9
Transfer
Restrictions
.
The
Investor will not transfer any of the Securities unless such transfer is
registered or exempt from registration under the Securities Act and such State
Acts, and, if requested by the Company in the case of an exempt transaction,
the
Investor has furnished an opinion of counsel reasonably satisfactory to the
Company that such transfer is so exempt. The Investor understands and agrees
that (i) the instruments or certificates evidencing the Securities will bear
appropriate legends indicating such transfer restrictions placed upon the
Securities, (ii) the Company shall have no obligation to honor transfers of
any
of the Securities in violation of such transfer restrictions, and (iii) the
Company shall be entitled to instruct any transfer agent or agents for the
securities of the Company to refuse to honor such transfers.
6.10
Principal
Address.
The
Investor’s principal residence, if an individual, or principal executive office,
if an entity, is set forth on the signature page of this Subscription
Agreement.
7.
Independent
Nature of Investor’s Obligations and Rights
.
The
obligations of the Investor under this Agreement and any other documents
delivered in connection herewith (collectively, the “
Transaction
Documents
”)
are
several and not joint with the obligations of any other purchaser of the Common
Stock and Warrants, and the Investor shall not be responsible in any way for
the
performance of the obligations of any other purchaser of the Common Stock and
Warrants under any Transaction Document. The decision of the Investor to
purchase the Common Stock and Warrants pursuant to the Transaction Documents
has
been made by the Investor independently of any other purchaser of the Common
Stock and Warrants. Nothing contained herein or in any Transaction Document,
and
no action taken by any purchaser of the Common Stock and Warrants pursuant
thereto, shall be deemed to constitute such purchasers as a partnership, an
association, a joint venture, or any other kind of entity, or create a
presumption that the purchasers of the Common Stock and Warrants are in any
way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Document. The Investor acknowledges
that no other purchaser of the Common Stock and Warrants has acted as agent
for
the Investor in connection with making its investment hereunder and that no
other purchaser of the Common Stock and Warrants will be acting as agent of
the
Investor in connection with monitoring its investment in the Common Stock and
Warrants or enforcing its rights under the Transaction Documents. The Investor
shall be entitled to independently protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other purchaser
of
the Common Stock and Warrants to be joined as an additional party in any
proceeding for such purpose.
8.
Prospectus
Delivery Requirement
.
The
Investor hereby covenants with the Company not to make any sale of the
Securities without complying with the provisions hereof and without effectively
causing the prospectus delivery requirement under the Securities Act to be
satisfied (unless the Investor is selling such Securities in a transaction
not
subject to the prospectus delivery requirement).
9.
Merger
Agreement and Related Matters
.
9.1
Merger
.
As a
condition to Closing, the Company shall have completed the transactions under
a
certain Agreement and Plan of Merger (“Merger Agreement”) entered into by and
among the Company and Wentworth I, Inc. (“Wentworth”), a Delaware corporation,
and dated as of January 12, 2006. Pursuant to the Merger Agreement the Company
intends to complete a business combination transaction by means of a merger
(“Merger”) between itself and Wentworth in which Wentworth will merge with the
Company and the Company will be the surviving entity, through an exchange of
all
the issued and outstanding shares of common and preferred stock of Wentworth
for
shares of the Company’s Common Stock. A copy of the Merger Agreement has been
made available to the Investor.
9.2
Covenant
Not to Sue
.
From
and after the Closing, the Investor agrees, on behalf of itself and its
officers, directors, shareholders and affiliates, that none of the Investor
or
its officers, directors, shareholders and affiliates will assert, or assist
in
the assertion of, any claim or action before any federal, state, local or
foreign judicial, arbitration, administrative, executive or other type of body
or tribunal against the officers, directors and advisors of Wentworth in such
positions prior to completion of the Merger and each of their respective
affiliates, subsidiaries, partners, successors and assigns and all of their
respective employees, officers, directors, agents and representatives
(collectively, “
Wentworth
Persons
”)
that
is based in whole or in part on their actions as an officer, director or advisor
of Wentworth or by reason of their conduct in respect of the business of
Wentworth, unless such claim or action is based on the gross negligence or
commission of fraud. The grants of immunity set forth in this section (i) are
irrevocable, (ii) shall survive indefinitely, and (iii) are binding on all
successors and assigns of the Investor.
9.3
Release
.
The
Investor hereby agrees to unconditionally and irrevocably release, exonerate,
acquit and discharge the Wentworth Persons, from any and all actions, causes
of
action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, judgments, executions, claims, demands, counterclaims,
rights to damages and liabilities (collectively, “
Claims
”),
that
the Investor ever had, now has, or hereafter might, can or shall have against
Wentworth Persons under statute, common law or otherwise, for or by reason
of
any matter, cause or thing whatsoever from the beginning of the world to, and
including, the date of the consummation of the Merger, other than Claims that
are for gross negligence or the commission of fraud as an officer, director
or
advisor in their conduct of the business of Wentworth.
9.4
Third
Party Beneficiaries
.
The
Wentworth Persons are third-party beneficiaries with respect to this
Section
9
and may
enforce the foregoing provisions as if they were a signatory
hereto.
10.
Registration
of the Shares; Compliance with the Securities Act
.
10.1
Registration
Procedures and Other Matters
.
The
Company shall:
(a)
subject
to receipt of necessary information from the Investor after prompt request
from
the Company to the Investor to provide such information, prepare and file with
the SEC, within 45 days after the Closing Date, a registration statement (the
“
Registration
Statement
”)
to
enable the resale of the shares of Common Stock sold in the Offering and the
shares of Common Stock underlying the Warrants (collectively the “
Registrable
Securities
”)
by the
Investors from time to time through a securities exchange, the automated
quotation system of the Nasdaq National Market or Nasdaq Capital Markets, in
the
Over-the-Counter Bulletin Board, the Pink Sheets or in privately-negotiated
transactions;
(b)
subject
to receipt of necessary information from the Investor after prompt request
from
the Company to the Investor to provide such information, use its reasonable
commercial efforts to cause the Registration Statement to become effective
on or
prior to the 150
th
day
after the Closing Date (the “
Effective
Date
”);
(c)
use
its
reasonable commercial efforts to prepare and file with the SEC such amendments
and supplements to the Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep the Registration Statement
current, effective and free from any material misstatement or omission to state
a material fact for a period not exceeding, with respect to each Investor’s
Registrable Securities , the earlier of (i) the date on which the Investor
may sell all the Registrable Securities then held by the Investor without
restriction by the volume limitations of Rule 144(e) of the Securities Act,
or (ii) such time as all the Registrable Securities purchased by such
Investor in this Offering have been sold pursuant to a registration statement.
Notwithstanding the foregoing, if any Investor is not able to immediately,
freely resell all Registrable Securities that it owns, the Company will continue
to keep the Registration Statement current, effective and free from any material
misstatement or omission to state a material fact for such period as is
necessary;
(d)
furnish
to the Investor with respect to the Registrable Securities registered under
the
Registration Statement such number of copies of the Registration Statement,
Prospectuses and Preliminary Prospectuses in conformity with the requirements
of
the Securities Act and such other documents as the Investor may reasonably
request, in order to facilitate the public sale or other disposition of all
or
any of the Registrable Securities by the Investor; provided, however, that
the
obligation of the Company to deliver copies of Prospectuses or Preliminary
Prospectuses to the Investor shall be subject to the receipt by the Company
of
reasonable assurances from the Investor that the Investor will comply with
the
applicable provisions of the Securities Act and of such other securities or
blue
sky laws as may be applicable in connection with any use of such Prospectuses
or
Preliminary Prospectuses;
(e)
file
documents required of the Company for normal blue sky clearance in states
specified in writing by the Investor and use its reasonable commercial efforts
to maintain such blue sky qualifications during the period the Company is
required to maintain the effectiveness of the Registration Statement pursuant
to
Section 10.1(c);
provided
,
however
,
that
the Company shall not be required to qualify to do business or consent to
service of process in any jurisdiction in which it is not now so qualified
or
has not so consented;
(f)
bear
all
expenses in connection with the procedures in paragraph (a) through (e) of
this
Section 10.1 (other than underwriting discounts or commissions, brokers’
fees and similar selling expenses, and any other fees or expenses incurred
by
the Investor, including attorney fees of the Investor) and the registration
of
the Registrable Securities pursuant to the Registration Statement;
and
(g)
advise
the Investor, promptly after it shall receive notice or obtain knowledge of
the
issuance of any stop order by the SEC delaying or suspending the effectiveness
of the Registration Statement or of the initiation or threat of any proceeding
for that purpose; and it will promptly use its reasonable commercial efforts
to
prevent the issuance of any stop order or to obtain its withdrawal at the
earliest possible moment if such stop order should be issued.
Notwithstanding
anything to the contrary herein, the Registration Statement shall cover only
the
Registrable Securities and certain other securities of the Company issuable
in
connection with the private offering of debt securities during the period
commencing July 2005 and ending September 2005, the Agent Warrants and
securities to be issued to the stockholders of Wentworth in the Merger. In
no
event at any time before the Registration Statement becomes effective with
respect to the Registrable Securities shall the Company publicly announce or
file any other registration statement, other than registrations on
Form S-8, without the prior written consent of a majority in interest of
the Investors.
The
Company understands that the Investor disclaims being an underwriter, but if
the
SEC deems the Investor to be an underwriter the Company shall not be relieved
of
any obligations it has hereunder;
provided
,
however
that if
the Company receives notification from the SEC that the Investor is deemed
an
underwriter, then the period by which the Company is obligated to submit an
acceleration request to the SEC shall be extended to the earlier of (i) the
90th day after such SEC notification, or (ii) 120 days after the initial
filing of the Registration Statement with the SEC.
The
Plan
of Distribution section of the Registration Statement shall be approved by
the
Placement Agent on behalf of the Investors whose Registrable Securities are
to
be included in the Registration Statement. If the Placement Agent, after being
provided a copy of the Registration Statement as to be filed, does not respond
or make comments to the Plan of Distribution section within five business days,
then the form of Plan of Distribution as submitted shall be deemed
approved.
10.2
Transfer
of Registrable Securities After Registration;
Suspension
.
(a)
The
Investor agrees that it will not effect any disposition of the Registrable
Securities or its right to purchase the Registrable Securities that would
constitute a sale within the meaning of the Securities Act except as
contemplated in the Registration Statement referred to in Section 10.1 and
as described below or as otherwise permitted by law, and that it will promptly
notify the Company of any changes in the information set forth in the
Registration Statement regarding the Investor or its plan of
distribution.
(b)
Except
in
the event that paragraph (c) below applies, the Company shall (i) if deemed
necessary by the Company, prepare and file from time to time with the SEC a
post-effective amendment to the Registration Statement or a supplement to the
related Prospectus or a supplement or amendment to any document incorporated
therein by reference or file any other required document so that such
Registration Statement will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to
make the statements therein not misleading, and so that, as thereafter delivered
to purchasers of the Registrable Securities being sold thereunder, such
Prospectus will not contain an untrue statement of a material fact or omit
to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) provide the Investor copies of any documents filed
pursuant to Section 10.2(b) as the Investor may reasonably request; and
(iii) inform each Investor that the Company has complied with its
obligations in Section 10.2(b) (or that, if the Company has filed a
post-effective amendment to the Registration Statement which has not yet been
declared effective, the Company will notify the Investor to that effect, will
use its reasonable commercial efforts to secure the effectiveness of such
post-effective amendment as promptly as possible and will promptly notify the
Investor pursuant to Section 10.2(b) hereof when the amendment has
become effective).
(c)
Subject
to paragraph (d) below, in the event (i) of any request by the SEC or any
other federal or state governmental authority during the period of effectiveness
of the Registration Statement for amendments or supplements to a Registration
Statement or related Prospectus or for additional information; (ii) of the
issuance by the SEC or any other federal or state governmental authority of
any
stop order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose; (iii) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale
in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; or (iv) of any event or circumstance which, upon the advice of its
counsel, necessitates the making of any changes in the Registration Statement
or
Prospectus, or any document incorporated or deemed to be incorporated therein
by
reference, so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or any omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or any omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; then the Company shall deliver a certificate in writing to the
Investor (the “
Suspension
Notice
”)
to the
effect of the foregoing and, upon receipt of such Suspension Notice, the
Investor will refrain from selling any of the Registrable Securities pursuant
to
the Registration Statement (a “
Suspension
”)
until
the Investor’s receipt of copies of a supplemented or amended Prospectus
prepared and filed by the Company, or until it is advised in writing by the
Company that the current Prospectus may be used, and has received copies of
any
additional or supplemental filings that are incorporated or deemed incorporated
by reference in any such Prospectus. In the event of any Suspension, the Company
will use its reasonable commercial efforts to cause the use of the Prospectus
so
suspended to be resumed as soon as reasonably practicable within 20 business
days after the delivery of a Suspension Notice to the Investor. In addition
to
and without limiting any other remedies (including, without limitation, at
law
or at equity) available to the Investor, the Investor shall be entitled to
specific performance in the event that the Company fails to comply with the
provisions of this Section 10.2(c).
(d)
Notwithstanding
the foregoing paragraphs of this Section 10.2, the Investor shall not be
prohibited from selling the Registrable Securities under the Registration
Statement as a result of Suspensions on more than two occasions of not more
than
30 days each in any twelve month period, unless, in the good faith judgment
of
the Company’s Board of Directors, upon the written opinion of counsel of the
Company, the sale of the Registrable Securities under the Registration Statement
in reliance on this Section 10.2(d) would be reasonably likely to cause a
violation of the Securities Act or the Exchange Act and result in liability
to
the Company.
(e)
Provided
that a Suspension is not then in effect, the Investor may sell the Registrable
Securities under the Registration Statement, provided that it arranges for
delivery of a current Prospectus to the transferee of such the Registrable
Securities. Upon receipt of a request therefor, the Company has agreed to
provide an adequate number of current Prospectuses to the Investor and to supply
copies to any other parties requiring such Prospectuses.
(f)
In
the
event of a sale of the Registrable Securities by the Investor pursuant to the
Registration Statement, the Investor must also deliver to the Company’s transfer
agent such documentation as is reasonably necessary so that the Registrable
Securities may be properly transferred.
10.3
Indemnification
.
For the
purpose of this Section 10.3:
(a)
the
term
“
Selling
Stockholder
”
means
the Investor and any affiliate of such Investor;
(b)
the
term
“
Registration
Statement
”
shall
include the Prospectus in the form first filed with the SEC pursuant to
Rule 424(b) of the Securities Act or filed as part of the Registration
Statement at the time of effectiveness if no Rule 424(b) filing is
required, and any exhibit, supplement or amendment included in or relating
to
the Registration Statement referred to in Section 10.1; and
(c)
the
term
“
Untrue
Statement
”
means
any untrue statement or alleged untrue statement, or any omission or alleged
omission to state in the Registration Statement a material fact required to
be
stated therein or necessary to make the statements therein, in the light of
the
circumstances under which they were made, not misleading.
(d)
the
Company agrees to indemnify and hold harmless each Selling Stockholder from
and
against any losses, claims, damages or liabilities to which such Selling
Stockholder may become subject (under the Securities Act or otherwise) insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon (i) any breach of the
representations or warranties of the Company contained herein or failure to
comply with the covenants and agreements of the Company contained herein,
(ii) any Untrue Statement, or (iii) any failure by the Company to
fulfill any undertaking included in the Registration Statement as amended or
supplemented from time to time, and the Company will reimburse such Selling
Stockholder for any reasonable legal or other expenses reasonably incurred
in
investigating, defending or preparing to defend any such action, proceeding
or
claim, or preparing to defend any such action, proceeding or claim,
provided
,
however
,
that
the Company shall not be liable in any such case to the extent that such loss,
claim, damage or liability arises out of, or is based upon, an Untrue Statement
made in reliance upon and in conformity with written information furnished
to
the Company by or on behalf of such Selling Stockholder specifically for use
in
preparation of the Registration Statement, as amended or supplemented from
time
to time (including, without limitation, information set forth in the Investor
Questionnaire), or the failure of such Selling Stockholder to comply with its
covenants and agreements contained in Section 10.2 hereof respecting sale of
the
Registrable Securities or any statement or omission in any Prospectus that
is
corrected in any subsequent Prospectus that was delivered to the Selling
Stockholder prior to the pertinent sale or sales by the Selling Stockholder.
The
Company shall reimburse each Selling Stockholder for the indemnifiable amounts
provided for herein on demand as such expenses are incurred.
(e)
The
Investor agrees to indemnify and hold harmless the Company (and each person,
if
any, who controls the Company within the meaning of Section 15 of the
Securities Act, each officer of the Company who signs the Registration Statement
and each director of the Company) from and against any losses, claims, damages
or liabilities to which the Company (or any such officer, director or
controlling person) may become subject (under the Securities Act or otherwise),
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, (i) any
failure to comply with the covenants and agreements contained in
Section 10.2 hereof respecting sale of the Registrable Securities, or
(ii) any Untrue Statement if such Untrue Statement was made in reliance
upon and in conformity with written information furnished by or on behalf of
the
Investor specifically for use in preparation of the Registration Statement,
as
amended or supplemented from time to time (including, without limitation,
information set forth in the Investor Questionnaire), and the Investor will
reimburse the Company (or such officer, director or controlling person), as
the
case may be, for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding
or
claim. The Investor shall reimburse the Company or such officer, director or
controlling person, as the case may be, for the indemnifiable amounts
provided
for
herein on demand as such expenses are incurred. Notwithstanding the foregoing,
the Investor’s aggregate obligation to indemnify the Company and such officers,
directors and controlling persons shall be limited to the net amount received
by
the Investor from the sale of the Registrable Securities.
(f)
Promptly
after receipt by any indemnified person of a notice of a claim or the beginning
of any action in respect of which indemnity is to be sought against an
indemnifying person pursuant to this Section 10.3, such indemnified person
shall notify the indemnifying person in writing of such claim or of the
commencement of such action, but the omission to so notify the indemnifying
person will not relieve it from any liability which it may have to any
indemnified person under this Section 10.3 (except to the extent that such
omission materially and adversely affects the indemnifying person’s ability to
defend such action) or from any liability otherwise than under this
Section 10.3. Subject to the provisions hereinafter stated, in case any
such action shall be brought against an indemnified person, the indemnifying
person shall be entitled to participate therein, and, to the extent that it
shall elect by written notice delivered to the indemnified person promptly
after
receiving the aforesaid notice from such indemnified person, shall be entitled
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified person. After notice from the indemnifying person to such
indemnified person of its election to assume the defense thereof, such
indemnifying person shall not be liable to such indemnified person for any
legal
expenses subsequently incurred by such indemnified person in connection with
the
defense thereof,
provided
,
however
,
that if
there exists or shall exist a conflict of interest that would make it
inappropriate, in the opinion of counsel to the indemnified person, for the
same
counsel to represent both the indemnified person and such indemnifying person
or
any affiliate or associate thereof, the indemnified person shall be entitled
to
retain its own counsel at the expense of such indemnifying person; provided,
however, that no indemnifying person shall be responsible for the fees and
expenses of more than one separate counsel (together with appropriate local
counsel) for all indemnified parties. In no event shall any indemnifying person
be liable in respect of any amounts paid in settlement of any action unless
the
indemnifying person shall have approved the terms of such settlement;
provided
that
such consent shall not be unreasonably withheld or delayed. No indemnifying
person shall, without the prior written consent of the indemnified person,
effect any settlement of any pending or threatened proceeding in respect of
which any indemnified person is or could have been a party and indemnification
could have been sought hereunder by such indemnified person, unless such
settlement includes an unconditional release of such indemnified person from
all
liability on claims that are the subject matter of such proceeding.
(g)
If
the
indemnification provided for in this Section 10.3 is unavailable to or
insufficient to hold harmless an indemnified person under subsection (a) or
(b)
above in respect of any losses, claims, damages or liabilities (or actions
or
proceedings in respect thereof) referred to therein, then each indemnifying
person shall contribute to the amount paid or payable by such indemnified person
as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and the Investor, as well as any other
Selling Shareholders under such Registration Statement on the other in
connection with the statements or omissions or other matters which resulted
in
such losses, claims, damages or liabilities (or actions in respect thereof),
as
well as any other relevant equitable considerations. The relative fault shall
be
determined by reference to, among other things, in the case of an Untrue
Statement, whether the Untrue Statement relates to information supplied by
the
Company on the one hand or an Investor or other Selling Shareholder on the
other
and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such Untrue Statement. The Company and the
Investor agree that it would not be just and equitable if contribution pursuant
to this subsection (d) were determined by pro rata allocation (even if the
Investor and other Selling Shareholders were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified person as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to
above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified person in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), the Investor shall not be required to contribute any amount
in
excess of the amount by which the net amount received by the Investor from
the
sale of the Registrable Securities to which such loss relates exceeds the amount
of any damages which such Investor has otherwise been required to pay by reason
of such Untrue Statement. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Investor’s obligations in this subsection to contribute
shall be in proportion to its Investor sale of the Registrable Securities to
which such loss relates and shall not be joint with any other Selling
Shareholders.
(h)
The
parties to this Agreement hereby acknowledge that they are sophisticated
business persons who were represented by counsel during the negotiations
regarding the provisions hereof including, without limitation, the provisions
of
this Section 10.3, and are fully informed regarding said provisions. They
further acknowledge that the provisions of this Section 10.3 fairly
allocate the risks in light of the ability of the parties to investigate the
Company and its business in order to assure that adequate disclosure is made
in
the Registration Statement as required by the Securities Act and the Exchange
Act. The parties are advised that federal or state public policy as interpreted
by the courts in certain jurisdictions may be contrary to certain of the
provisions of this Section 10.3, and the parties hereto hereby expressly
waive and relinquish any right or ability to assert such public policy as a
defense to a claim under this Section 10.3 and further agree not to attempt
to assert any such defense.
10.4
Termination
of Conditions and Obligations
.
The
conditions precedent imposed by this Section 10 upon the transferability of
the Registrable Securities shall cease and terminate as to any particular number
of the Registrable Securities when such Registrable Securities shall have been
effectively registered under the Securities Act and sold or otherwise disposed
of in accordance with the intended method of disposition set forth in the
Registration Statement covering such Registrable Securities or at such time
as
an opinion of counsel reasonably satisfactory to the Company shall have been
rendered to the effect that such conditions are not necessary in order to comply
with the Securities Act.
10.5
Information
Available
.
So long
as the Registration Statement is effective covering the resale of the
Registrable Securities owned by the Investor, the Company will furnish to the
Investor:
(a)
as
soon
as practicable after it is available, one copy of (i) its Annual Report to
Stockholders (which Annual Report shall contain financial statements audited
in
accordance with generally accepted accounting principles by a national firm
of
certified public accountants), (ii) its Annual Report on Form 10-KSB and
(iii) its Quarterly Reports on Form 10-QSB (the foregoing, in each
case, excluding exhibits);
(b)
upon
the
request of the Investor, all exhibits excluded by the parenthetical to
subparagraph (a) of this Section 10.5 as filed with the SEC and all
other information that is made available to shareholders; and
(c)
upon
the
reasonable request of the Investor, the President or the Chief Financial Officer
of the Company (or an appropriate designee thereof) will meet with the Investor
or a representative thereof at the Company’s headquarters to discuss all
information relevant for disclosure in the Registration Statement covering
the
Registrable Securities and will otherwise cooperate with any Investor conducting
an investigation for the purpose of reducing or eliminating such Investor’s
exposure to liability under the Securities Act, including the reasonable
production of information at the Company’s headquarters; provided, that the
Company shall not be required to disclose any confidential information to or
meet at its headquarters with any Investor until and unless the Investor shall
have entered into a confidentiality agreement in form and substance reasonably
satisfactory to the Company with the Company with respect thereto.
10.6
Legend;
Restrictions on Transfer
.
The
certificate or certificates for the Registrable Securities (and any securities
issued in respect of or exchange for the Registrable Securities) shall be
subject to a legend or legends restricting transfer under the Securities Act
and
referring to restrictions on transfer herein, such legend to be substantially
as
follows:
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT
OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF
COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES,
SUCH OFFER, SALE OR TRANSFER OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
The
Company and the Investor acknowledge and agree that the Investor may, as
permitted by law, from time to time pledge pursuant to a bona fide margin
agreement or grant a security interest in some or all of the Registrable
Securities and, if required under the terms of such arrangement, Investor may,
as permitted by law, transfer pledged or secured Registrable Securities to
the
pledgees or secured parties. So long as Investor is not an affiliate of the
Company, such a pledge or transfer would not be subject to approval or consent
of the Company, provided that, upon the request of the Company, a legal opinion
of legal counsel to the pledgee, secured party or pledgor shall be obtained.
At
the Investor’s expense, so long as the Registrable Securities are subject to the
legend required by this Section 10.6, the Company will use its reasonable
commercial efforts to execute and deliver such reasonable documentation as
a
pledgee or secured party of Registrable Securities may reasonably request in
connection with a pledge or transfer of the Registrable Securities including
such amendments or supplements to the Registration Statement and Prospectus
as
may be reasonably required. The foregoing does not affect Investor’s obligations
pursuant to Section 10.2(a).
10.7
Liquidated
Damages
.
The
Company and Investor agree that Investor will suffer damages if the Company
fails to fulfill its obligations pursuant to Section 10.1 and 10.2 hereof and
that it would not be possible to ascertain the extent of such damages with
precision. Accordingly, the Company hereby agrees to pay liquidated damages
(“
Liquidated
Damages
”)
to
Investor under the following circumstances: (a) if the Registration Statement
is
not filed by the Company on or prior to 45 days after the Closing Date (such
an
event, a “
Filing
Default
”);
(b)
if the Registration Statement is not declared effective by the SEC on or prior
to the 150
th
day
after the Closing Date (such an event, an “
Effectiveness
Default
”);
and/or (c) if the Registration Statement (after its effectiveness date) ceases
to be effective and available to Investor for any continuous period that exceeds
30 days or for one or more period that exceeds in the aggregate 60 days in
any
12-month period (such an event, a “
Suspension
Default
”
and
together with a Filing Default and an Effectiveness Default, a “
Registration
Default
”).
In
the event of a Registration Default, the Company shall as Liquidated Damages
pay
to Investor, for each 30-day period of a Registration Default, an amount equal
to 1% of the aggregate purchase price paid by Investor pursuant to this
Agreement up to a maximum of 18% of the aggregate purchase price paid by the
Investor, provided that Liquidation Damages in respect of a Suspension Default
shall not be payable in relation to any Registrable Securities not owned by
the
Investor at the time of the Suspension Default and,
provided
further
,
that no
Liquidated Damages are due in respect of the Warrants. In the event of a Filing
Default or an Effectiveness Default, the Liquidated Damages shall be paid by
the
issuance of additional Common Stock at the rate of the amount of the Liquidated
Damages due divided by $2.00 (“
Penalty
Shares
”).
To
the extent any Penalty Shares are issued or may be issuable, the Penalty Shares
shall be included in the Registration Statement. In the event of a Suspension
Default, the Liquidated Damages shall be paid in cash. The Company shall pay
the
Liquidated Damages as follows: (i) in connection with a Filing Default, on
the
46th day after the Closing Date, and each 30th day thereafter until the
Registration Statement is filed with the SEC; (ii) in connection with an
Effectiveness Default, on the 150
th
day
after the Closing Date and each 30th day thereafter until the Registration
Statement is declared effective by the SEC; or (iii) in connection with a
Suspension Default, on either (x) the 31
st
consecutive day of any Suspension or (y) the 61
st
day (in
the aggregate) of any Suspensions in any 12-month period, and each
30
th
day
thereafter until the Suspension is terminated in accordance with Section 10.2.
Notwithstanding the foregoing, all periods shall be tolled during delays
directly caused by the action or inaction of any Investor, and the Company
shall
have no liability to any Investor in respect of any such delay. The Liquidated
Damages payable herein shall apply on a pro rata basis for any portion of a
30-day period of a Registration Default.
11.
Indemnification
of Investor
.
In
addition to the indemnity provided in the registration rights provisions of
this
Agreement, the Company will indemnify and hold the Investor and its directors,
officers, shareholders, partners, employees and agents (each, an “
Investor
Party
”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs, and reasonable attorneys’ fees and costs of
investigation (collectively, “
Losses
”)
that
any such Investor Party may suffer or incur as a result of or relating to any
misrepresentation, breach, or inaccuracy of any representation, warranty,
covenant, or agreement made by the Company in any Transaction Document. In
addition to the indemnity contained herein, the Company will reimburse each
Investor Party for its reasonable legal and other expenses (including the cost
of any investigation, preparation, and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred.
12.
Non-Public
Information
.
Subsequent to the Closing, the Company covenants and agrees that neither it
nor
any other person acting on its behalf will provide Investor or its agents or
counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto Investor shall have executed a
written agreement regarding the confidentiality and use of such information.
The
Company understands and confirms that Investor shall be relying on the foregoing
representations in effecting transactions in securities of the
Company.
13.
Further
Assurances
.
The
parties hereto will, upon reasonable request, execute and deliver all such
further assignments, endorsements and other documents as may be necessary in
order to perfect the purchase by the Investor of the Common Stock and
Warrants.
14.
Entire
Agreement; No Oral Modification
.
This
Agreement contains the entire agreement among the parties hereto with respect
to
the subject matter hereof and supersedes all prior agreements and understandings
with respect thereto and may not be amended or modified except in a writing
signed by both of the parties hereto.
15.
Binding
Effect; Benefits
.
This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, successors and assigns; however, nothing in this
Agreement, expressed or implied, is intended to confer on any other person
other
than the parties hereto, or their respective heirs, successors or assigns,
any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
16.
Counterparts
.
This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed to be an original and all of which together shall be deemed to be one
and
the same instrument. The execution of this Agreement may be evidenced by
facsimile or electronic signature, and such signature shall for all purposes
be
treated as an original signature of such party.
17.
Governing
Law
.
This
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the United States of America and the State of Colorado, both
substantive and remedial.
Any
judicial proceeding brought against either of the parties to this agreement
or
any dispute arising out of this Agreement or any matter related hereto shall
be
brought in the courts of the State of Colorado, or in the United States District
Court located in Denver, Colorado and, by its execution and delivery of this
agreement, each party to this Agreement accepts the jurisdiction of such courts.
18.
Prevailing
Parties
.
In any
action or proceeding brought to enforce any provision of this Agreement, or
where any provision hereof is validly asserted as a defense, the prevailing
party shall be entitled to receive and the non-prevailing party shall pay upon
demand reasonable attorneys’ fees in addition to any other remedy.
19.
Notices
.
All
communication hereunder shall be in writing and, if sent to you shall be mailed,
delivered, telegraphed or sent by facsimile or electronic mail, and confirmed
to
an Investor at the address set forth on the signature page of this Agreement,
or
if sent to the Company, shall be mailed, delivered, telegraphed or sent by
facsimile or electronic mail and confirmed to the Company at 900 28
th
Street,
Suite 201, Boulder, CO 80303, Attention: CEO, telephone number: (303) 444-7755,
fax number: (303) 444-0406.
20.
Headings
.
The
section headings herein are included for convenience only and are not to be
deemed a part of this Agreement.
[Signature
on following page]
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date
first written above.
AERO
GROW INTERNATIONAL, INC.
a
Nevada
corporation
By:
__________________________
Michael
Bissonnette, CEO
[INVESTOR
SIGNATURE PAGE FOLLOWS]
[INVESTOR
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT]
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INVESTOR
(for Entities, Trusts and IRAs):
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INVESTOR
(for Individuals):
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___________________________________
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____________________________________
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Print
Name of Entity (full legal name)
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Print
Name of Individual (full legal name)
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By:
_________________________________
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________________________________
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Signature
of Authorized Person
|
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Signature
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____________________________________
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Print
Name and Title
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____________________________________
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____________________________________
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____________________________________
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____________________________________
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____________________________________
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____________________________________
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Executive
Office Address
|
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Principal
Residence Address
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____________________________________
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IRS
Tax Identification No.
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IRS
Tax Identification No.
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____________________________________
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____________________________________
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Telephone
Number
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Telephone
Number
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____________________________________
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____________________________________
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Fax
Number
|
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Fax
Number
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____________________________________
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____________________________________
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E-mail
Address
|
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E-mail
Address
|
Number
of
Units subscribed to (Minimum 5,000 Units): ____________
Subscription
Amount: Number of Units subscribed to multiplied by $5.00 = $__________
INSTRUCTIONS
TO INVESTORS:
Subscription
Documents:
Please
send the completed and signed Subscription Agreement, Investor Questionnaire,
NASD Questionnaire and, if you are a non-U.S. person, a Form W-8, to the
following person:
|
|
Keating
Securities, LLC
5251
DTC Parkway, Suite 1090
Greenwood
Village, CO 80111
Attn:
Kelley Boland, Operations Associate
(720)
489-4914
(303)
728-3538 telecopy
kb@keatinginvestments.com
e-mail
|
Payment
of Funds:
All
wire
transfers of subscription funds should be sent to the Escrow Account. All
subscribers' checks should be made payable to “Keating - AeroGrow Escrow
Account” and sent
directly
to the
Escrow Agent. The deposit and wire instructions for the Escrow Account are
as
follows:
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Steele
Street State Bank
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88
Steele Street, Suite 50
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Denver,
CO 80206
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Attn:
Jason Flynn
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For
Benefit to: Keating - AeroGrow Escrow Account
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Account
#: 10003975
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Wire
Instructions:
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Receiving
Bank Name:
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Wells
Fargo Bank, N.A.
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Receiving
Bank ABA#:
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121000248
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Receiving
Bank City/State:
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San
Francisco, CA
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Beneficiary:
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Steele
Street State Bank
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Beneficiary’s
Account #:
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4100059286
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For
Further Benefit to:
|
Keating-AeroGrow
Escrow Account
|
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Account
#:
|
10003975
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EXHIBIT
A
- COMMON STOCK PURCHASE WARRANT
EXHIBIT
B
- INVESTOR QUESTIONNAIRE
EXHIBIT
C
- NASD QUESTIONNAIRE
EMPLOYMENT
AGREEMENT
Employment
Agreement (the “Agreement”), dated as of March 1, 2006, by and between AeroGrow
International, Inc., a Nevada corporation (the “Company”), and W. Michael
Bissonnette (“Employee”).
In
consideration of the promises and conditions contained herein, the parties
hereto agree as follows:
Section 1.
Employment.
The
Company hereby agrees to employ Employee, and Employee hereby accepts employment
by the Company effective as of the date of this Agreement (the “Commencement
Date”), upon the terms and subject to the conditions hereinafter set forth.
Section 2.
Duties.
Employee
shall serve as the Chief Executive Officer and Chariman of the Board of the
Company. Employee will perform the duties attendant to his executive position
with the Company under the direction of the Board of Directors of the Company.
Employee will perform his duties faithfully and to the reasonable best of his
ability and will devote his full business efforts and time to the Company and
shall comply with all reasonable and lawful existing and future regulations
applicable to senior management level employees of the Company and to the
Company's business.
Section 3.
Term.
Unless
Employee's employment hereunder is terminated earlier pursuant to Section 6
of
this Agreement, Employee's employment hereunder shall begin on March 1 and
shall
expire on the last day of the twenty fourth (24
th
)
month
(calculated from the first day of the month following execution of this
agreement) (the initial “Contract Term”), provided that upon the expiration of
the initial Contract Term, the Employee's employment hereunder shall continue
for additional consecutive extension terms of one (1) year each until either
party gives notice of termination to the other at least one hundred and eighty
(180) days prior to end of the Contract Term. The initial Contract Term and
any
extension is referred to as the Contract Term.
Section 4.
Compensation and Benefits.
In
consideration for the services of the Employee hereunder, the Company will
compensate Employee as follows:
(a)
Base
Salary
.
Beginning on the Commencement Date, Employee shall be entitled to receive a
base
salary of $225,000 per annum with an annual review. Such Base Salary shall
be
payable in periodic installments in accordance with the terms of the Company's
regular payroll practices in effect from the time during the term of this
Agreement and subject to applicable tax withholding., but in no event less
frequently than once each month.
(b)
Bonus
.
Employee
shall receive an annual cash bonus in an amount not less than 1.5% of the EBITDA
of the Company as determined by the Company’s annual financial statements and
pro rated for any portion of such annual period covered under this Agreement.
Such bonus shall be payable not later than one hundred and twenty (120) days
after the end of each of the Company’s fiscal years covered under this
agreement. Employee acknowledges the foregoing may be modified by the Board
of
Directors subsequent to the initial Contract Term, however, in such event;
the
Bonus herein shall in no event be less favorable than that granted to the
Company’s senior executives.
(c)
Benefits
.
Employee
shall be entitled to participate in and receive benefits under any and all
employee benefit plans and programs which are from time to time generally made
available to the executive employees of the Company, subject to approval and
grant by the Governance Committee of the Board with respect to programs calling
for such approvals or grants and consistent with plan terms.
Section 5.
Expenses.
(a)
It is
acknowledged that Employee, in connection with the services to be performed
by
him pursuant to the terms of this Agreement, will be required to make payments
for travel, entertainment of business associates and similar expenses. The
Company will reimburse Employee for all reasonable expenses of types authorized
by the Company and incurred by Employee in the performance of his duties
hereunder within fifteen days from date Employee submits a request for such
reimbursement. Employee will comply with such budget limitations and approval
and reporting requirements with respect to expenses as the Company may establish
from time to time.
(b)
In
addition to the foregoing, Employee shall be entitled to receive a
non-accountable expense allowance of $2,500 per month as reimbursement for
Employee’s auto expenses, home office expenses and other expenditures not
included in Section 5 (a) that are commensurate with Employee’s
position.
Section 6.
Termination.
(a)
For
Cause by Company
.
The
Company may terminate the Employee's employment under this Agreement at any
time
for Cause. “Cause” is defined as (i) a material act of dishonesty by
Executive in connection with his responsibilities as an Employee,
(ii) conviction of, or plea of nolo contendere to, a felony,
(iii) gross misconduct, or (iv) continued substantial violation of
his employment duties after Employee has received a written demand for
performance from the Company which specifically sets forth the factual basis
for
the Company’s belief that Employee has not substantially performed his
duties.
(b)
Without
Cause by Company.
The
Company may terminate the Employee's employment under this Agreement at any
time
without Cause. If the Company breaches any term of this Agreement and fails
to
cure such breach within thirty (30) days of notice of such breach from the
Employee, and if Employee terminates his employment with the Company within
thirty (30) days after the period for the cure of the breach by the Company
expires, the Company shall be deemed to have terminated the Employee's
employment hereunder without Cause. Material breach, as defined herein shall
include, without limitation, (a) any failure by the Company to comply with
Section 4 hereof in any material way; (b) the relocation of the principal place
where the Employee regularly performs services for the Company outside of the
Denver, Colorado Metropolitan Area; (e) any misrepresentation by Company to
any
government or other violation of law. If the Company terminates the Employee’s
employment in accordance with this paragraph, the Employee shall be entitled
to;
(i) continuation in payment of his Base Salary until the end of the twelfth
(12
th
)
month
following termination, at the rate in effect immediately before the termination;
(ii) the payment by the Company of medical benefits payable to employee until
the end of the twelfth (12
th
)
month
following termination, and; (iii) the pro rata portion the bonus payable
pursuant to Section 4(b) as determined by the EBITDA as of the nearest quarter
end financial statements of the Company. The foregoing is provided that the
Employee honors the restrictive covenants provided in this Agreement and
executes a release of all claims arising from his employment by the Company,
in
such form as may then be used by the Company respecting termination of
employees.
(c)
Without
Cause by Employee.
The
Employee may terminate the Employee's employment under this Agreement at any
time after the initial Contract Term without Cause upon giving at least thirty
(30) day’s advance written notice. If the Employee terminates the Employee’s
employment in accordance with this paragraph, the Employee shall be entitled
to
continuation in payment of his Base Salary until the end of the month following
said notice.
(e)
Disability.
If
Employee becomes permanently and totally disabled, this Agreement shall be
terminated. Employee shall be deemed permanently and totally disabled if he
is
unable to engage in the activities required by this Agreement by reason of
any
medically determinable physical or mental impairment, as confirmed by three
independent physicians, which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months. Upon termination due to disability, any portion of any
of
the Options granted to the Employee that is not then vested shall vest and
all
Options shall be exercisable by Employee until ninety (90) days after the
termination. Nothing herein shall limit the entitlement of the Employee to
any
other rights or benefits then available to the Employee under any plan or
program of the Company or under applicable law.
(f)
Death.
If
Employee dies during the Employment Term, the Employment shall be terminated
on
the last day of the calendar month of his death and any portion of any of the
Options granted to the Employee that is not then vested shall become vested
and
all Options shall be exercisable by the designated beneficiary, as provided
in
Section 6.8 below, the estate or personal representative of Employee until
ninety (90) days after death. This Section 4.9 will not limit the entitlement
of
the Employee's estate, personal representative or beneficiaries to any death
or
other benefits then available to the Employee under any life insurance, stock
ownership, stock options, or other benefit plan or policy that is maintained
by
the Company for the Employee's benefit.
(e)
Non-Renewal
Is Not Termination
.
The
notice by either party not to renew the Contract Term for another year is not
a
termination under this Agreement.
Section
7.
Restrictive Covenants and Representations.
(a)
Confidential
Data.
The
Employee will hold in a fiduciary capacity and will not reveal, communicate
or
divulge during the period of his employment by the Company or thereafter, any
information, knowledge or data to any person, firm or corporation other than
the
Company or persons, firms or corporations designated by the Company, which
relates to the names of the customers, finances, technical data concerning
products or services, or any other secret or confidential information, knowledge
or data of the Company or of any firm owned by the Company, which was learned
through or as a result of employment by the Company.
(b)
Covenant
Not to Compete
.
In
consideration for his employment hereunder, during the term of this agreement,
and for twenty-four (24) months after the termination of this agreement,
whichever is later, the Employee shall not, within the United States, either
directly or indirectly, own, have a proprietary interest of any kind in, be
employed by, or serve as a consultant to or in any other capacity for any firm
which is in the primary business of providing aeroponics products or businesses,
or which is otherwise engaged in a business that is competitive with that
conducted by the Company. Notwithstanding the foregoing, the Employee may invest
in the securities of any corporation whose shares are listed on a national
securities exchange or registered under the Securities Exchange Act of
1934.
(c)
Ownership
of Inventions
.
There
shall become the exclusive property of the Company, its successors and assigns,
every invention and improvement conceived, invented or developed by the Employee
during the term of his employment hereunder relating to products or services
to
be manufactured, sold, used or in the process of development by the Company
or
by any parent or affiliate of the Company during such period of employment,
or
which may be sold or used in competition with any such product. Employee agrees
to execute such assignments, instruments or other documents as the Company
or
its counsel may request to implement this paragraph.
(d)
Non-Solicitation of Employees
.
The
Employee and any entity controlled by him or with which he is associated (as
the
terms "control" and "associate" are defined in the Exchange Act) shall not,
during the Contract Term and for a term of eighteen (18) months thereafter,
directly or indirectly solicit, interfere with, offer to hire or induce any
person who is or was an officer or employee of the Company or any affiliate
(as
the term "affiliate" is defined in the Exchange Act) (other than secretarial
personnel) to discontinue his or her relationship with the Company or an
affiliate of the Company, in order to accept employment by, or enter into a
business relationship with, any other entity or person. (These acts are
hereinafter referred to as the "prohibited acts of solicitation.")
(e)
Return
of Property.
Upon
termination of employment, and at the request of the Company, the Employee
agrees to promptly deliver to the Company all Company or affiliate memoranda,
notes, records, reports, manuals, drawings, designs, computer files in any
media, and any other documents (including extracts and copies thereof) relating
to the Company or its affiliates, and all other property of the Company. Upon
termination, the Executive shall cease to use all such materials and information
set forth under this Section 7(a).
(f)
Representations.
The
Employee represents and warrants to the Company that he has full power and
authority to enter into this Agreement and perform his duties hereunder, and
that he has no outstanding agreement, whether oral or written or any obligation
that is or may be in conflict with any of the provisions of this Agreement
or
that would preclude Employee from complying with the provisions of this
Agreement and the performance of his duties shall not result in a breach of,
or
constitute a default under, any agreement , whether oral or written, including,
without limitation, any restrictive covenant or confidentiality agreement,
to
which he is a party or by which he may be bound. Employee further represents
and
warrants that he has not misappropriated any confidential information and/or
trade secrets of any third party that he intends to use in the performance
of
his duties under this Agreement. Company and the individual signing this
Agreement on behalf of Company each represent and warrant that they each have
full power and authority to enter into this Agreement, that there are no
agreements whether oral or written, or legal requirements, that conflict with
any provisions of this Agreement, and that the performance of this Agreement
shall not result in a breach of, or constitute a material default, under, any
such agreement or legal requirement.
Section
8.
Indemnities
(a)
Employee
.
Employee shall indemnify and hold harmless the Company from and against any
losses, claims, damages or liabilities which arise out of any breach of
Employee's representations and warranties set forth in Section 7 (f) of this
Agreement as determined in a court of law and made part of a final judgment
after exhaustion of, or the time has lapsed for, any appeal thereof.
(b)
Company
.
Company
shall defend, indemnify and hold Employee harmless from and against any losses,
claims, damages or liabilities which arise out of any: (a) action or inaction
taken or not taken by him in the ordinary course of Company's business or as
directed by the Chairman, CEO or the Board unless a court of law determines
that
Employee has breached the Employee's representations and warranties set forth
in
Section 7(f) of this Agreement as part of a final judgment after exhaustion
of,
or the time has lapsed for, any appeal thereof. The Company agrees to obtain
and
maintain Directors and Officers Liability Insurance during the Contract Term
with coverage of not less than $1.5 million.
Section 9.
General.
(a)
Notices
.
Except
as provided in Section 8(a) hereof, all notices and other communications
hereunder will be in writing or by written telecommunication, and will be deemed
to have been duly given if delivered personally or if mailed by certified mail,
return receipt requested, or by written telecommunication, to the relevant
address set forth below, or to such other address as the recipient of such
notice or communication will have specified to the other party hereto in
accordance with this Section ll(a):
If
to
Employer, to:
AeroGrow
International, Inc.
900
28th
Street, Suite 201
Boulder,
Co 80303
If
to
Employee, to:
Michael
Bissonnette
900
28th
Street, Suite 201
Boulder,
Co 80303
(b)
Withholding;
No Offset
.
All
payments required to be made by Employer under this Agreement to Employee will
be subject to the withholding of such amounts, if any, relating to federal,
state and local taxes as may be required by law. No payment under this Agreement
will be subject to offset or reduction attributable to any amount Employee
may
owe to the Company or any other person.
(c)
Equitable
Remedies
.
Each
of
the parties hereto acknowledges and agrees that upon any breach by Employee
of
his obligations under any of Section 7 hereof, the Company will have no adequate
remedy at law, and accordingly will be entitled to specific performance and
other appropriate injunctive and equitable relief.
(d)
Severability
.
If
any
provision of this Agreement is held to be illegal, invalid or unenforceable,
such provision will be fully severable and this Agreement will be construed
and
enforced as if such illegal, invalid or unenforceable provision never comprised
a part hereof; and the remaining provisions hereof will remain in full force
and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such illegal,
invalid or unenforceable provision, there will be added automatically as part
of
this Agreement a provision as similar in its terms to such illegal, invalid
or
unenforceable provision as may be possible and be legal, valid and enforceable.
(e)
Waivers
.
No
delay
or omission by either party hereto in exercising any right, power or privilege
hereunder will impair such right, power or privilege, nor will any single or
partial exercise of any such right, power or privilege preclude any further
exercise thereof or the exercise of any other right, power or privilege.
(f)
Counterparts
.
This
Agreement may be executed in multiple counterparts, each of which will be deemed
an original, and all of which together will constitute one and the same
instrument.
(g)
Captions
.
The
captions in this Agreement are for convenience of reference only and will not
limit or otherwise affect any of the terms or provisions hereof
(h)
Reference
to Agreement
.
Use
of
the words “herein,” “hereof,” “hereto” and the like in this Agreement refer to
this Agreement only as a whole and not to any particular subsection or provision
of this Agreement, unless otherwise noted.
(i)
Binding
Agreement
.
This
Agreement will be binding upon and inure to the benefit of the parties and
will
be enforceable by the personal representatives and heirs of Employee and the
successors of Employer. If Employee dies while any amounts would still be
payable to him hereunder, such amounts will be paid to Employee’s estate. This
Agreement is not otherwise assignable by Employee.
(j)
Designation of Beneficiary
.
If the
Employee shall die before receipt of all payments and benefits to which he
is
entitled under this Agreement, payment of such amounts or benefits in the manner
provided herein shall be made to such beneficiary as he shall have designated
in
writing filed with the Secretary of the Company or, in the absence of such
designation, to his estate or personal representative.
(k)
Attorneys
Fees
.
In any
proceeding brought to enforce any provision of this Agreement, or to seek
damages for a breach of any provision hereof, or when any provision hereof
is
validly asserted as a defense, the prevailing party will be entitled to receive
from the other party all reasonable attorney's fees and costs in connection
therewith.
(j)
Entire
Agreement
.
This
Agreement contains the entire understanding of the parties, supersedes all
prior
agreements and understandings relating to the subject matter hereof and may
not
be amended except by a written instrument hereafter signed by each of the
parties hereto.
(k)
Governing
Law
.
This
Agreement and the performance hereof will be construed and governed in
accordance with the laws of the State of Nevada, without regard to its choice
of
law principles.
EXECUTED
as of the date first above written.
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AEROGROW
INTERNATIONAL, INC.
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By:
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______________________________________________
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______________________________________________
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EMPLOYEE:
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By:
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______________________________________________
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W.
Michael Bissonnette
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EMPLOYMENT
AGREEMENT
Employment
Agreement (the “Agreement”), dated as of March 1, 2006, by and between AeroGrow
International, Inc., a Nevada corporation (the “Company”), and Mitchell B. Rubin
(“Employee”).
In
consideration of the promises and conditions contained herein, the parties
hereto agree as follows:
Section 1.
Employment.
The
Company hereby agrees to employ Employee, and Employee hereby accepts employment
by the Company effective as of the date of this Agreement (the “Commencement
Date”), upon the terms and subject to the conditions hereinafter set forth.
Section 2.
Duties.
Employee
shall serve as the Chief Financial Officer of the Company. Employee will perform
the duties attendant to his executive position with the Company under the
direction of the Chief Executive Officer and the Board of Directors of the
Company. Employee will perform his duties faithfully and to the reasonable
best
of his ability and will devote his full business efforts and time to the Company
and shall comply with all reasonable and lawful existing and future regulations
applicable to senior management level employees of the Company and to the
Company's business.
During
the Term, Employee shall devote his full business time, skill and energies
to
the business of the Company; provided, however, that Employee may, during the
initial four (4) months from the Commencement Date devote a limited amount
of
time to other business activities, so long as (a) such activities are not
competitive with the Company's business, (b) Executive’s so doing does not
interfere with his performance of his duties to the Company and (c) such
activities do not exceed 10 hours per week and are not conducted weekdays during
the hours of 9:00am to 6:00pm. Further, on or before August 31, 2006, if this
Agreement has not otherwise been terminated pursuant to Section 6 herein,
Employee agrees to relocate to Boulder, Colorado area.
Section 3.
Term.
Unless
Employee's employment hereunder is terminated earlier pursuant to Section 6
of
this Agreement, Employee's employment hereunder shall begin on March 1 and
shall
expire on the last day of the twenty fourth (24
th
)
month
(calculated from the first day of the month following execution of this
agreement) (the initial “Contract Term”), provided that upon the expiration of
the initial Contract Term, the Employee's employment hereunder shall continue
for additional consecutive extension terms of one (1) year each until either
party gives notice of termination to the other at least one hundred and eighty
(180) days prior to end of the Contract Term. The initial Contract Term and
any
extension is referred to as the Contract Term.
Section 4.
Compensation and Benefits.
In
consideration for the services of the Employee hereunder, the Company will
compensate Employee as follows:
(a)
Base
Salary
.
Beginning on the Commencement Date, Employee shall be entitled to receive a
base
salary of $200,000 per annum. Such Base salary shall be payable in periodic
installments in accordance with the terms of the Company's regular payroll
practices in effect from the time during the term of this Agreement and subject
to applicable tax withholding., but in no event less frequently than once each
month.
(b)
Bonus
.
Employee
shall receive an annual cash bonus in an amount not less than 1.5% of the EBITDA
of the Company as determined by the Company’s annual financial statements and
pro rated for any portion of such annual period covered under this Agreement.
Such bonus shall be payable not later than one hundred and twenty (120) days
after the end of the each of the Company’s fiscal years covered under this
agreement. Employee acknowledges the foregoing may be modified by the Board
of
Directors subsequent to the initial Contract Term, however, in such event;
the
Bonus herein shall in no event be less favorable than that granted to the
Company’s senior executives.
(c)
Benefits
.
Employee
shall be entitled to participate in and receive benefits under any and all
employee benefit plans and programs which are from time to time generally made
available to the executive employees of the Company, subject to approval and
grant by the Governance Committee of the Board with respect to programs calling
for such approvals or grants and consistent with plan terms.
(d)
Equity
Compensation
.
Employee shall be entitled to participate in and receive benefits under the
2005
Equity Compensation Plan, and any successor plan providing for compensation
in
the form of stock, stock options and other equity-related compensation provided
by the Company to its employees. The initial grant of the Stock Options to
be
granted to Employee pursuant to the Company’s 2005 Equity Compensation Plan
shall not be less than 125,000 options to purchase the common stock of the
Company at an exercise price of not greater than $5.00. The options shall;
(i)
vest pursuant to terms no less than a minimum of 50% of the amount of the grant
per each twelve month period from the date of grant; (ii) shall not expire
in
less than five (5) years from the date of grant; (iii) shall be subject to
other
standard terms and conditions under the 2005 Equity Compensation Plan, and;
(iv)
shall have other terms and conditions no less favorable than that granted to
other senior executives of the Company. Employee agrees that the foregoing
options shall be subject to the lockup provisions as required by the Company’s
investment bankers in conjunction with a private placement offering conducted
during February, 2006.
Section 5.
Expenses.
It is
acknowledged that Employee, in connection with the services to be performed
by
him pursuant to the terms of this Agreement, will be required to make payments
for travel, entertainment of business associates and similar expenses. The
Company will reimburse Employee for all reasonable expenses of types authorized
by the Company and incurred by Employee in the performance of his duties
hereunder within fifteen days from date Employee submits a request for such
reimbursement. Employee will comply with such budget limitations and approval
and reporting requirements with respect to expenses as the Company may establish
from time to time.
For
a
period not to exceed the initial six months of the Term, the Company will pay
all reasonable living and travel expenses of Employee while Employee is in
Boulder inclusive of weekly airfare, car rental, hotel (or furnished apartment)
and food (not to exceed $25/day). In the event the Employee relocates to
the Boulder area sooner than expiration of this initial six month period, which
shall be defined as Employee purchasing or leasing a dwelling in the Boulder
area larger than a one bedroom apartment, the Company’s obligation shall end.
Company shall also pay all of Employee’s expenses related to such relocation up
to a maximum of $12,000.
Section 6.
Termination.
(a)
For
Cause by Company
.
The
Company may terminate the Employee's employment under this Agreement at any
time
for Cause. “Cause” is defined as (i) a material act of dishonesty by
Executive in connection with his responsibilities as an Employee,
(ii) conviction of, or plea of nolo contendere to, a felony,
(iii) gross misconduct, or (iv) continued substantial violation of
his employment duties after Employee has received a written demand for
performance from the Company which specifically sets forth the factual basis
for
the Company’s belief that Employee has not substantially performed his
duties.
(b)
Without
Cause by Company.
The
Company may terminate the Employee's employment under this Agreement at any
time
without Cause. If the Company breaches any term of this Agreement and fails
to
cure such breach within thirty (30) days of notice of such breach from the
Employee, and if Employee terminates his employment with the Company within
thirty (30) days after the period for the cure of the breach by the Company
expires, the Company shall be deemed to have terminated the Employee's
employment hereunder without Cause. Material breach, as defined herein shall
include, without limitation, (a) any failure by the Company to comply with
Section 4 hereof in any material way; (b) the relocation of the principal place
where the Employee regularly performs services for the Company outside of the
Denver, Colorado Metropolitan Area; (e) any misrepresentation by Company to
any
government or other violation of law. If the Company terminates the Employee’s
employment in accordance with this paragraph, the Employee shall be entitled
to;
(i) continuation in payment of his Base Salary until the end of the sixth
(6
th
)
month
following termination, at the rate in effect immediately before the termination;
(ii) the payment by the Company of medical benefits payable to employee until
the end of the sixth (6
th
)
month
following termination, and; (iii) the pro rata portion the bonus payable
pursuant to Section 4(b) as determined by the EBITDA as of the nearest quarter
end financial statements of the Company. The foregoing is provided that the
Employee honors the restrictive covenants provided in this Agreement and
executes a release of all claims arising from his employment by the Company,
in
such form as may then be used by the Company respecting termination of
employees.
(c)
Without
Cause by Employee.
The
Employee may terminate the Employee's employment under this Agreement at any
time after the initial Contract Term without Cause upon giving at
least ninety (90) day’s advance written notice. If the Employee terminates
the Employee’s employment in accordance with this paragraph, the Employee shall
be entitled to continuation in payment of his Base Salary until the end of
the
month following said notice. Notwithstanding the foregoing, Employee may
terminate the Employee's employment under this Agreement during the initial
six
(6) months of the Contract Term without cause upon giving at least sixty (60)
day’s advance written notice.
(d)
Change
of Control.
Upon
the
occurrence of a Change of Control, Employee may, at Employee’s option, terminate
Employee's employment under this Agreement after (90) ninety days of the
occurrence of such Change of Control upon giving at least one hundred and eighty
days (180) day’s advance written notice.
For
purposes of this Agreement, a "change of control" shall mean the appointment
by
the Board of Directors of a new Chief Executive Officer. If the Employee elects
to terminate the Employee’s employment in accordance with this section such
termination shall be deemed as a termination without cause by Employee pursuant
to Section 6 (c) herein.
(e)
Disability.
If
Employee becomes permanently and totally disabled, this Agreement shall be
terminated. Employee shall be deemed permanently and totally disabled if he
is
unable to engage in the activities required by this Agreement by reason of
any
medically determinable physical or mental impairment, as confirmed by three
independent physicians, which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months. Upon termination due to disability, any portion of any
of
the Options granted to the Employee that is not then vested shall vest and
all
Options shall be exercisable by Employee until ninety (90) days after the
termination. Nothing herein shall limit the entitlement of the Employee to
any
other rights or benefits then available to the Employee under any plan or
program of the Company or under applicable law.
(f)
Death.
If
Employee dies during the Employment Term, the Employment shall be terminated
on
the last day of the calendar month of his death and any portion of any of the
Options granted to the Employee that is not then vested shall become vested
and
all Options shall be exercisable by the designated beneficiary, as provided
in
Section 6.8 below, the estate or personal representative of Employee until
ninety (90) days after death. This Section 4.9 will not limit the entitlement
of
the Employee's estate, personal representative or beneficiaries to any death
or
other benefits then available to the Employee under any life insurance, stock
ownership, stock options, or other benefit plan or policy that is maintained
by
the Company for the Employee's benefit.
(e)
Non-Renewal
Is Not Termination
.
The
notice by either party not to renew the Contract Term for another year is not
a
termination under this Agreement.
Section
7.
Restrictive Covenants and Representations.
(a)
Confidential
Data.
The
Employee will hold in a fiduciary capacity and will not reveal, communicate
or
divulge during the period of his employment by the Company or thereafter, any
information, knowledge or data to any person, firm or corporation other than
the
Company or persons, firms or corporations designated by the Company, which
relates to the names of the customers, finances, technical data concerning
products or services, or any other secret or confidential information, knowledge
or data of the Company or of any firm owned by the Company, which was learned
through or as a result of employment by the Company.
(b)
Covenant
Not to Compete
.
In
consideration for his employment hereunder, during the term of this agreement,
and for twenty-four (24) months after the termination of this agreement,
whichever is later, the Employee shall not, within the United States, either
directly or indirectly, own, have a proprietary interest of any kind in, be
employed by, or serve as a consultant to or in any other capacity for any firm
which is in the primary business of providing aeroponics products or businesses,
or which is otherwise engaged in a business that is competitive with that
conducted by the Company. Notwithstanding the foregoing, the Employee may invest
in the securities of any corporation whose shares are listed on a national
securities exchange or registered under the Securities Exchange Act of
1934.
(c)
Ownership
of Inventions
.
There
shall become the exclusive property of the Company, its successors and assigns,
every invention and improvement conceived, invented or developed by the Employee
during the term of his employment hereunder relating to products or services
to
be manufactured, sold, used or in the process of development by the Company
or
by any parent or affiliate of the Company during such period of employment,
or
which may be sold or used in competition with any such product. Employee agrees
to execute such assignments, instruments or other documents as the Company
or
its counsel may request to implement this paragraph.
(d)
Non-Solicitation of Employees
.
The
Employee and any entity controlled by him or with which he is associated (as
the
terms "control" and "associate" are defined in the Exchange Act) shall not,
during the Contract Term and for a term of eighteen (18) months thereafter,
directly or indirectly solicit, interfere with, offer to hire or induce any
person who is or was an officer or employee of the Company or any affiliate
(as
the term "affiliate" is defined in the Exchange Act) (other than secretarial
personnel) to discontinue his or her relationship with the Company or an
affiliate of the Company, in order to accept employment by, or enter into a
business relationship with, any other entity or person. (These acts are
hereinafter referred to as the "prohibited acts of solicitation.")
(e)
Return
of Property.
Upon
termination of employment, and at the request of the Company, the Employee
agrees to promptly deliver to the Company all Company or affiliate memoranda,
notes, records, reports, manuals, drawings, designs, computer files in any
media, and any other documents (including extracts and copies thereof) relating
to the Company or its affiliates, and all other property of the Company. Upon
termination, the Executive shall cease to use all such materials and information
set forth under this Section 7(a).
(f)
Representations.
The
Employee represents and warrants to the Company that he has full power and
authority to enter into this Agreement and perform his duties hereunder, and
that he has no outstanding agreement, whether oral or written or any obligation
that is or may be in conflict with any of the provisions of this Agreement
or
that would preclude Employee from complying with the provisions of this
Agreement and the performance of his duties shall not result in a breach of,
or
constitute a default under, any agreement , whether oral or written, including,
without limitation, any restrictive covenant or confidentiality agreement,
to
which he is a party or by which he may be bound. Employee further represents
and
warrants that he has not misappropriated any confidential information and/or
trade secrets of any third party that he intends to use in the performance
of
his duties under this Agreement. Company and the individual signing this
Agreement on behalf of Company each represent and warrant that they each have
full power and authority to enter into this Agreement, that there are no
agreements whether oral or written, or legal requirements, that conflict with
any provisions of this Agreement, and that the performance of this Agreement
shall not result in a breach of, or constitute a material default, under, any
such agreement or legal requirement.
Section
8.
Indemnities
(a)
Employee
.
Employee shall indemnify and hold harmless the Company from and against any
losses, claims, damages or liabilities which arise out of any breach of
Employee's representations and warranties set forth in Section 7 (f) of this
Agreement as determined in a court of law and made part of a final judgment
after exhaustion of, or the time has lapsed for, any appeal thereof.
(b)
Company
.
Company
shall defend, indemnify and hold Employee harmless from and against any losses,
claims, damages or liabilities which arise out of any: (a) action or inaction
taken or not taken by him in the ordinary course of Company's business or as
directed by the Chairman, CEO or the Board unless a court of law determines
that
Employee has breached the Employee's representations and warranties set forth
in
Section 7(f) of this Agreement as part of a final judgment after exhaustion
of,
or the time has lapsed for, any appeal thereof. The Company agrees to obtain
and
maintain Directors and Officers Liability Insurance during the Contract Term
with coverage of not less than $1.5 million.
Section 9.
General.
(a)
Notices
.
Except
as provided in Section 8(a) hereof, all notices and other communications
hereunder will be in writing or by written telecommunication, and will be deemed
to have been duly given if delivered personally or if mailed by certified mail,
return receipt requested, or by written telecommunication, to the relevant
address set forth below, or to such other address as the recipient of such
notice or communication will have specified to the other party hereto in
accordance with this Section ll(a):
If
to
Employer, to:
AeroGrow
International, Inc.
900
28th
Street, Suite 201
Boulder,
Co 80303
If
to
Employee, to:
Mitchell
B Rubin
1513
Oberlin Ave
Thousand
Oaks, California 91360
(b)
Withholding;
No Offset
.
All
payments required to be made by Employer under this Agreement to Employee will
be subject to the withholding of such amounts, if any, relating to federal,
state and local taxes as may be required by law. No payment under this Agreement
will be subject to offset or reduction attributable to any amount Employee
may
owe to the Company or any other person.
(c)
Equitable
Remedies
.
Each
of
the parties hereto acknowledges and agrees that upon any breach by Employee
of
his obligations under any of Section 7 hereof, the Company will have no adequate
remedy at law, and accordingly will be entitled to specific performance and
other appropriate injunctive and equitable relief.
(d)
Severability
.
If
any
provision of this Agreement is held to be illegal, invalid or unenforceable,
such provision will be fully severable and this Agreement will be construed
and
enforced as if such illegal, invalid or unenforceable provision never comprised
a part hereof; and the remaining provisions hereof will remain in full force
and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such illegal,
invalid or unenforceable provision, there will be added automatically as part
of
this Agreement a provision as similar in its terms to such illegal, invalid
or
unenforceable provision as may be possible and be legal, valid and enforceable.
(e)
Waivers
.
No
delay
or omission by either party hereto in exercising any right, power or privilege
hereunder will impair such right, power or privilege, nor will any single or
partial exercise of any such right, power or privilege preclude any further
exercise thereof or the exercise of any other right, power or privilege.
(f)
Counterparts
.
This
Agreement may be executed in multiple counterparts, each of which will be deemed
an original, and all of which together will constitute one and the same
instrument.
(g)
Captions
.
The
captions in this Agreement are for convenience of reference only and will not
limit or otherwise affect any of the terms or provisions hereof
(h)
Reference
to Agreement
.
Use
of
the words “herein,” “hereof,” “hereto” and the like in this Agreement refer to
this Agreement only as a whole and not to any particular subsection or provision
of this Agreement, unless otherwise noted.
(i)
Binding
Agreement
.
This
Agreement will be binding upon and inure to the benefit of the parties and
will
be enforceable by the personal representatives and heirs of Employee and the
successors of Employer. If Employee dies while any amounts would still be
payable to him hereunder, such amounts will be paid to Employee’s estate. This
Agreement is not otherwise assignable by Employee.
(j)
Designation of Beneficiary
.
If the
Employee shall die before receipt of all payments and benefits to which he
is
entitled under this Agreement, payment of such amounts or benefits in the manner
provided herein shall be made to such beneficiary as he shall have designated
in
writing filed with the Secretary of the Company or, in the absence of such
designation, to his estate or personal representative.
(k)
Attorneys
Fees
.
In any
proceeding brought to enforce any provision of this Agreement, or to seek
damages for a breach of any provision hereof, or when any provision hereof
is
validly asserted as a defense, the prevailing party will be entitled to receive
from the other party all reasonable attorney's fees and costs in connection
therewith.
(j)
Entire
Agreement
.
This
Agreement contains the entire understanding of the parties, supersedes all
prior
agreements and understandings relating to the subject matter hereof and may
not
be amended except by a written instrument hereafter signed by each of the
parties hereto.
(k)
Governing
Law
.
This
Agreement and the performance hereof will be construed and governed in
accordance with the laws of the State of Nevada, without regard to its choice
of
law principles.
EXECUTED
as of the date first above written.
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AEROGROW
INTERNATIONAL, INC.
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By:
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_____________________________________________________
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Its:
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______________________________________________
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EMPLOYEE:
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By: _____________________________________________________
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Mitchell
B. Rubin
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