AeroGrow International SC 13DAeroGrow International / SMG Growing Media ownership change

This Amendment No. 11 to a Statement on Schedule 13D amends and restates in its entirety such Schedule 13D (as so amended and restated, this "Schedule 13D”).

This Schedule 13D is being filed by SMG Growing Media, Inc. (“SMG”) and The Scotts Miracle-Gro Company, an Ohio corporation (“Scotts”, together with SMG, the “Reporting Persons”), with respect to the shares of Common Stock that may be deemed to be beneficially owned by the Reporting Persons.

The Common Stock reported in this Schedule 13D is directly owned by SMG. SMG is a direct wholly-owned subsidiary of Scotts. Scotts does not own directly any securities of the Issuer. However, as a result of Scotts’ direct ownership of all of SMG’s equity, Scotts may be deemed to beneficially own securities of the Issuer directly owned by SMG. Each of the Reporting Persons specifically disclaims beneficial ownership in the Common Stock reported herein except to the extent it actually exercises voting or dispositive power with respect to such Common Stock.

SMG and Scotts are holding companies, and they each have their principal business address located at 14111 Scottslawn Road, Marysville, Ohio 43041.

None of the Reporting Persons or the Controlling Persons (together the “Scotts Persons”) have, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. None of the Scotts Persons have, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors).

Except as set forth in this Item 4, none of the Reporting Persons have any present plans or proposals that relate to or would result in any of the actions specified in clauses (a) through (j) of Item 4 of Schedule 13D of the Act. However, each Reporting Person may, at any time and from time to time, review, reconsider and discuss with the Issuer or others their positions with respect to the Issuer that could result in the adoption of such plans or proposals.

As previously disclosed in Amendment No. 10 to the Schedule 13D, at the meeting of the Board of Directors of the Issuer (the “Issuer Board”) held on February 27, 2020 (the “Board Meeting”), SMG recommended a range of operational adjustments to the Issuer Board that would effectively outsource most of Issuer’s operations to SMG or one of its affiliates.

During the Board Meeting, members of the Issuer Board asked SMG whether it had considered a sale of the Issuer to a potential buyer. SMG informed the Issuer Board that it would be willing to consider viable alternatives to its recommendations and requested that the Issuer Board give SMG more detailed information regarding viable alternatives, including a potential sale of the Issuer to a strategic or private equity buyer.

Following the Board Meeting, the members of the Issuer Board who are not affiliated with SMG (the “Outside Directors”) engaged a financial advisor to evaluate SMG’s recommendations and identify potential alternatives to SMG’s recommendations. As part of its process to identify alternatives, the financial advisor solicited indications of interest from potential strategic and private equity buyers with respect to a sale of the Issuer. On July 28, 2020, SMG sent a letter to the financial advisor requesting a meeting to discuss the status of the financial advisor’s process so that the Reporting Persons, as

References to percentage ownerships of shares of Common Stock in this Schedule 13D are based on the 34,328,036 voting securities of the Issuer believed by the Reporting Persons to be outstanding as of September 30, 2019.

(a, b) As of the date hereof, SMG owns 27,639,294 shares of Common Stock. SMG has the sole power to vote or direct the vote of 27,639,294 shares of Common Stock; may be deemed to have shared power to vote or direct the vote of 0 shares of Common Stock; has sole power to dispose or direct the disposition of 27,639,294 shares of Common Stock; and has shared power to dispose or direct the disposition of 0 shares of Common Stock. The aggregate amount of shares of Common Stock beneficially owned by the Reporting Persons constitutes 80.5% of the outstanding voting securities of the Issuer.

(a, b) As of the date hereof, Scotts does not own directly any securities of the Issuer. However, as a result of relationships described in Item 2 hereof, Scotts may be deemed to beneficially own the Common Stock owned by SMG. Each of the Reporting Persons specifically disclaims beneficial ownership in the Common Stock reported herein except to the extent it actually exercises voting or dispositive power with respect to such Common Stock.

(c) Except as otherwise described in this Schedule 13D, to the Reporting Persons’ knowledge, neither the Reporting Persons nor any Controlling Person has effected any transaction in shares of Common Stock since the Amendment No. 9 to this Schedule 13D was filed by the Reporting Persons on August 30, 2017.

(d) To the Reporting Persons’ knowledge, no person other than the Reporting Persons has the right to receive, or the power to direct the receipt of, dividends from, or the proceeds from the sale of, the shares of Common Stock covered by this Schedule 13D.

(e) Not applicable.

The Warrant entitled, but did not obligate, SMG to purchase a number of shares of Common Stock that constitutes, on a “fully diluted basis” (as defined in the Warrant), 80% of the Issuer’s outstanding capital stock (when added to all other shares owned by SMG), as calculated as of the date or dates of exercise. The Warrant was exercisable at any time and from time to time for a period of five years between April 22, 2016 and April 22, 2021. In addition, the Warrant was exercisable in any increment; with no obligation to exercise the entire Warrant at one time. On November 29, 2016, SMG fully exercised the Warrant resulting in its acquisition of 21,613,342 shares of Common Stock. The exercise price of the Warrant was equal to the quotient obtained by dividing: (a) an amount equal to (i) 1.34 times the trailing twelve months “Net Sales” (which includes the cost to The Scotts Company LLC of the Issuer’s products sold by Scotts and its affiliates) plus (ii) the aggregate exercise price of outstanding in-the-money derivative securities, minus (iii) “Debt Outstanding” net of cash, plus (iv) cash and cash equivalents (as such terms are defined in the Warrant), by (b) the total shares of capital stock outstanding, including outstanding in-the-money options and warrants, but not the Warrant.

In connection with the Purchase Agreement, on April 22, 2013, SMG and the Issuer entered into the Investor’s Rights Agreement. The terms of the Investor’s Rights Agreement include the following:

In connection with the Purchase Agreement, on April 22, 2013, OMS and the Issuer entered into the Brand License Agreement. Pursuant to the terms of the Brand License Agreement, OMS granted to the Issuer a non-exclusive license (the “Brand License”) to use certain trademarks on and in connection with certain hydroponic and aeroponic products in North America and certain European countries in exchange for the Issuer’s payment to OMS of an amount equal to 5% of incremental growth in annual net sales for the then current fiscal year, as compared to net sales during the fiscal year ended March 31, 2013 (the “License Fee”). For contract years 1-4, the License Fee is payable in shares of Common Stock at the then-current Series B Preferred Stock conversion price.

For subsequent contract years, the License Fee is payable in cash. If the License Fee owed to OMS for the fourth contract year is less than $500,000, then the Issuer must pay an additional fee in shares of Common Stock equal to the difference between $500,000 and the License Fee due. If the License Fee owed to OMS for the fifth contract year or any subsequent contract year is less than $1,000,000, then the Issuer must pay OMS an additional fee in cash equal to the difference between $1,000,000 and the License Fee due for such contract year. The Brand License Agreement contains representations, warranties, covenants and indemnification customary for agreements of this type. The initial term of the Brand License Agreement is from April 22, 2013 to March 31, 2018. The Issuer may renew the Brand License Agreement for consecutive five-year renewal terms by notifying OMS at least six months in advance of the then-current term, provided that the Issuer is not then in default thereunder. The Brand License Agreement contains a termination provision customary for agreements of this type. The Brand License may not be assigned or sub-licensed.

OMS assigned to SMG all future payments due or to become due under the Brand License Agreement that are payable in shares of Common Stock.

In connection with the Purchase Agreement, on April 22, 2013, OMS and the Issuer entered into the Technology License Agreement. Pursuant to the terms of the Technology License Agreement, OMS granted the Issuer an exclusive license (the “Technology License”) to use certain hydroponic intellectual property in North America and certain European countries in exchange for a royalty of 2% of the Issuer’s net sales (the “Royalty”), as determined at the end of each fiscal year. For contract years 1-4, the Royalty is payable in shares of Common Stock at the then-current Series B Preferred Stock conversion price. For subsequent contract years, the Royalty is payable in cash. The Technology License Agreement contains representations, warranties, covenants and indemnification customary for agreements of this type. The initial term of the Technology License Agreement is five years from April 1, 2013. The Issuer may renew the Technology License Agreement for consecutive five-year renewal terms by notifying OMS at least six months in advance of the then-current term, provided that the Issuer is not then in default thereunder. The Technology License Agreement contains a termination provision customary for agreements of this type. The Technology License may not be assigned or sub-licensed.

OMS assigned to SMG all future payments due or to become due under the Technology License Agreement that are payable in shares of Common Stock.

On July 10, 2014, the Issuer, as borrower, and SMG, as lender, entered into a $4.5 million Term Loan and Security Agreement (as so amended, the “2014 Loan Agreement”). Under the 2014 Loan Agreement, SMG loaned the Issuer an aggregate of $4.5 million (the “2014 Term Loan”). Pursuant to the 2014 Loan Agreement, the proceeds of the 2014 Term Loan were used solely to fund the acquisition of inventory by the Issuer. The unpaid principal balance of the 2014 Term Loan bore interest at a rate equal to 10% per annum through February 15, 2015 and 20% per annum thereafter. The maturity date of the 2014 Loan Agreement was April 15, 2015 (the “Maturity Date”). Interest on the 2014 Term Loan was payable in shares of Common Stock at the then-current Series B Preferred Stock conversion price. The principal was paid in cash before the Maturity Date. On April 24, 2015, all outstanding amounts owed by the Issuer to SMG under the 2014 Loan Agreement were paid.

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.