Exhibit 10.6
 
CORPORATE RESOLUTION TO BORROW I GRANT COLLATERAL
 
Principal
$2,000,000.00
Loan Date
05-21-2010
Maturity
05-20-2011
Loan No
43011861
Call / Coll
Account
Officer
   520
Initials
References in the boxes above are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing .."***"  has been omitted due to text length
limitations.

 

Corporation:       AeroGrow International, Inc.           Lender:      FIRST
WESTERN TRUST BANK   6075 Longbow Drive, Ste 200      Boulder Branch   Boulder,
CO 80301        1155 Canyon Blvd.       Boulder, CO 80302       (303) 441-9400

                                                                                                                                                                      

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I. THE UNDERSIGNED, DO HEREBY CERTIFY AND STATE UNDER PENALTY OF PERJURY THAT:
 
THE CORPORATION'S EXISTENCE. The complete and correct name of the Corporation is
AeroGrow International, Inc. ("Corporation"). The Corporation is a corporation
for profit which is, and at all times shall be, duly organized, validly
existing, and in good standing under and by virtue of the laws of the State of
Nevada. The Corporation is duly authorized to transact business in the State of
Colorado and all other states in which the Corporation is doing business, having
obtained all necessary filings, governmental licenses and approvals for each
state in which the Corporation is doing business. Specifically, the Corporation
is, and at all times shall be, duly qualified as a foreign corporation in all
states in which the failure to so qualify would have a material adverse effect
on its business or financial condition. The Corporation has the full power and
authority to own its properties and to transact the business in which it is
presently engaged or presently proposes to engage. The Corporation maintains an
office at 6075 Longbow Drive, Ste 200, Boulder, CO 80301. Unless the Corporation
has designated otherwise in writing, the principal office is the office at which
the Corporation keeps its books and records. The Corporation will notify Lender
prior to any change in the location of the Corporation's state of organization
or any change in the Corporation's name. The Corporation shall do all things
necessary to preserve and to keep in full force and effect its existence, rights
and privileges, and shall comply with all regulations, rules, ordinances,
statutes, orders and decrees of any governmental or quasi-governmental authority
or court applicable to the Corporation and the Corporation's business
activities.
 
RESOLUTIONS ADOPTED. At a meeting of the Directors of the Corporation, or if the
Corporation is a close corporation having no Board of Directors then at a
meeting of the Corporation's shareholders, duly called and held May 19, 10, at
which a quorum was present and voting, or by other duly authorized action in
lieu of a meeting, the resolutions set forth in his Resolution were adopted.
 
    OFFICER. The following named person is an officer of AeroGrow International,
Inc.
 

 

NAMES TITLES AUTHORIZED AGTUAL SIGNATURES
 
Jack J. Walker
 
Chief Executive Officer
 
Y
 [aerogrow-walkersig.jpg]

 
ACTIONS AUTHORIZED. The authorized person listed above may enter into any
agreements of any nature with Lender, and those agreements will bind the
Corporation. Specifically, but without limitation, the authorized person is
authorized, empowered, and directed to do the following for and on behalf of the
Corporation:
 
Borrow Money. To borrow, as a cosigner or otherwise, from time to time from
Lender, on such terms as may be agreed upon between the Corporation and Lender,
such sum or sums of money as in his or her judgment should be borrowed, without
limitation.
 
 
 

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Execute Notes. To execute and deliver to Lender the promissory note or notes, or
other evidence of the Corporation's credit accommodations, on Lender's forms, at
such rates of interest and on such terms as may be agreed upon, evidencing the
sums of money so borrowed or any of the Corporation's indebtedness to Lender,
and also to execute and deliver to Lender one or more renewals, extensions,
modifications, refinancing, consolidations, or substitutions for one or more of
the notes, any portion of the notes, or any other evidence of credit
accommodations.
 
Grant Security. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender any property now or hereafter belonging
to the Corporation or in which the Corporation now or hereafter may have an
interest, including without limitation all of the Corporation's real property
and all of the Corporation's personal property (tangible or intangible), as
security for the payment of any loans or credit accommodations so obtained, any
promissory notes so executed (including any amendments to or modifications,
renewals, and extensions of such promissory notes), or any other or further
indebtedness of the Corporation to Lender at any time owing, however the same
may be evidenced. Such property may be mortgaged, pledged, transferred,
endorsed, hypothecated or encumbered at the time such loans are obtained or such
indebtedness is incurred, or at any other time or times, and may be either in
addition to or in lieu of any property theretofore mortgaged, pledged,
transferred, endorsed, hypothecated or encumbered.
 
Execute Security Documents. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and other
security agreements and financing statements which Lender may require and which
shall evidence the terms and conditions under and pursuant to which such liens
and encumbrances, or any of them, are given; and also to execute and deliver to
Lender any other written instruments, any chattel paper, or any other
collateral, of any kind or nature, which Lender may deem necessary or proper in
connection with or pertaining to the giving of the liens and encumbrances.
 
Negotiate Items. To draw, endorse, and discount with Lender all drafts, trade
acceptances, promissory notes, or other evidences of indebtedness payable to or
belonging to the Corporation or in which the Corporation may have an interest,
and either to receive cash for the same or to cause such proceeds to be credited
to the Corporation's account with Lender, or to cause such other disposition of
the proceeds derived there from as he or she may deem advisable.
 
Further Acts. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances under such lines,
and in all cases, to do and perform such other acts and things, to pay any and
all fees and costs, and to execute and deliver such other documents and
agreements, including agreements waiving the right to a trial by jury, as the
officer may in his or her discretion deem reasonably necessary or proper in
order to carry into effect the provisions of this Resolution.
 
ASSUMED BUSINESS NAMES. The Corporation has filed or recorded all documents or
filings required by law relating to all assumed business names used by the
Corporation. Excluding the name of the Corporation, the following is a complete
list of all assumed business names under which the Corporation does business:
None.
 
NOTICES TO LENDER. The Corporation will promptly notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (A) change in the Corporation's name; (B) change
in the Corporation's assumed business name(s); (C) change in the management of
the Corporation; (D) change in the authorized signer(s); (E) change in the
Corporation's principal office address; (F) change in the Corporation's state of
organization; (G) conversion of the Corporation to a new or different type of
business entity; or (H) change in any other aspect of the Corporation that
directly or indirectly relates to any agreements between the Corporation and
Lender. No change in the Corporation's name or state of organization will take
effect until after Lender has received notice.
 
CERTIFICATION CONCERNING OFFICERS AND RESOLUTIONS. The officer named above is
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupies the position set opposite his or her respective name. This
Resolution now stands of record on the books of the Corporation, is in full
force and effect, and has not been modified or revoked in any manner whatsoever.
 
NO CORPORATE SEAL. The Corporation has no corporate seal, and therefore, no seal
is affixed to this Resolution.
 
CONTINUING VALIDITY. Any and all acts authorized pursuant to this Resolution and
performed prior to the passage of this Resolution are hereby ratified and
approved. This Resolution shall be continuing, shall remain in full force and
effect and Lender may rely on it until written notice of its revocation shall
have been delivered to and received by Lender at Lender's address shown above
(or such addresses as Lender may designate from time to time). Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.

IN TESTIMONY WHEREOF, I have hereunto set my hand and attest that the signature
set opposite the name listed above is his or her genuine signature.

I have read all the provisions of this Resolution, and I personally and on
behalf of the Corporation certify that all statements and representations made
in this Resolution are true and correct. This Corporate Resolution to Borrow I
Grant Collateral is dated May 21, 2010.

 
 

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CORPORATE RESOLUTION TO BORROW I GRANT COLLATERAL
 

Loan No: 43011861 (Continued) Page 2

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[aerogrow10-6img1.jpg]                                                                   
 
 
 
NOTE: If the officer signing this Resolution is designated by the foregoing
document as one of the officers authorized to act on the Corporation's behalf,
it is advisable to have this Resolution signed by least one
non-authorized officer of the Corporation.
 
LASER PRO lending. Ver. 5.51.00.002 Copr. Harland Financial, Solutions, 1997.
2010. All Right Reserved. CO C:\LASERPRO\CFI\LPL\C10.FC TR·2636 PR-6
 
 
 

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BUSINESS LOAN AGREEMENT
 
 
Principal
$2,000,000.00
Loan Date
05-21-2010
Maturity
05-20-2011
Loan No
43011861
Call / Coll
Account
Officer
   520
Initials
References in the boxes above are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing .."***"  has been omitted due to text length
limitations.

 

Borrower:       AeroGrow International, Inc.           Lender:      FIRST
WESTERN TRUST BANK   6075 Longbow Drive, Ste 200      Boulder Branch   Boulder,
CO 80301        1155 Canyon Blvd.       Boulder, CO 80302       (303) 441-9400

 

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THIS BUSINESS LOAN AGREEMENT dated May 21, 2010, is made and executed between
AeroGrow International, Inc. ("Borrower") and FIRST WESTERN TRUST BANK
("Lender") on the following terms and conditions. Borrower has received prior
commercial loans from Lender or has applied to Lender for a commercial loan or
loans or other financial accommodations, including those which may be described
on any exhibit or schedule attached to this Agreement. Borrower understands and
agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying
upon Borrower's representations, warranties, and agreements as set forth in this
Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all
times shall be subject to Lender's sole Judgment and discretion; and (C) all
such Loans shall be and remain subject to the terms and conditions of this
Agreement.

TERM. This Agreement shall be effective as of May 21, 2010, and shall continue
In full force and effect until such time as all of Borrower's Loans in favor of
Lender have been paid in full, including principal, interest, costs, expenses,
attorneys' fees, and other fees and charges, or until May 20, 2011.

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the Initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to Lender's satisfaction of all of the conditions set forth in this
Agreement and in the Related Documents.

Loan Documents. Borrower shall provide to Lender the following documents for the
Loan: (1) the Note; (2) Security Agreements granting to Lender security
interests In the Collateral; (3) financing statements and all other documents
perfecting Lender's Security Interests; (4) evidence of insurance as required
below; (5) together with all such Related Documents as Lender may require for
the Loan; all in form and substance satisfactory to Lender and Lender's counsel.

Borrower's Authorization. Borrower shall have provided in form and substance
satisfactory to Lender properly certified resolutions, duly authorizing the
execution and delivery of this Agreement, the Note and the Related Documents. In
addition, Borrower shall have provided such other resolutions, authorizations,
documents and Instruments as Lender or its counsel, may require.

Payment of Fees and Expenses. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in this
Agreement or any Related Document.

Representations and Warranties. The representations and warranties set forth in
this Agreement, in the Related Documents, and in any document or certificate
delivered to Lender under this Agreement are true and correct.

No Event of Default. There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under this Agreement or
under any Related Document.

 
 

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REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
 
Organization. Borrower is a corporation for profit which is, and at all times
shall be, duly organized, validly existing, and in good standing under and by
virtue of the laws of the State of Nevada. Borrower is duly authorized to
transact business in all other states in which Borrower is doing business,
having obtained all necessary filings, governmental licenses and approvals for
each state in which Borrower is doing business. Specifically, Borrower is, and
at all times shall be, duly qualified as a foreign corporation in all states In
which the failure to so qualify would have a material adverse effect on its
business or financial condition. Borrower has the full power and authority to
own its properties and to transact the business in which it is presently engaged
or presently proposes to engage. Borrower maintains an office at 6075 Longbow
Drive, Ste 200, Boulder, CO 80301. Unless Borrower has designated otherwise in
writing, the principal office is the office at which Borrower keeps its books
and records including its records concerning the Collateral. Borrower will
notify Lender prior to any change in the location of Borrower's state of
organization or any change in Borrower's name. Borrower shall do all things
necessary to preserve and to keep in full force and effect its existence, rights
and privileges, and shall comply with all regulations, rules, ordinances,
statutes, orders and decrees of any governmental or quasi-governmental authority
or court applicable to Borrower and Borrower's business activities.

Assumed Business Names. Borrower has filed or recorded all documents or filings
required by law relating to all assumed business names used by Borrower.
Excluding the name of Borrower, the following is a complete list of all assumed
business names under which Borrower does business: None.

Authorization. Borrower's execution, delivery, and performance of this Agreement
and all the Related Documents have been duly authorized by all necessary action
by Borrower and do not conflict with, result in a violation of, or constitute a
default under (1) any provision of (a) Borrower's articles of incorporation or
organization, or bylaws, or (b) any agreement or other instrument binding upon
Borrower or (2) any law, governmental regulation, court decree, or order
applicable to Borrower or to Borrower's properties.

Financial Information. Each of Borrower's financial statements supplied to
Lender truly and completely disclosed Borrower's financial condition as of the
date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.

Legal Effect. This Agreement constitutes, and any instrument or agreement
Borrower is required to give under this Agreement when delivered will constitute
legal, valid, and binding obligations of Borrower enforceable against Borrower
in accordance with their respective terms.

Properties. Except as contemplated by this Agreement or as previously disclosed
in Borrower's financial statements or in writing to Lender and as accepted by
Lender, and except for property tax liens for taxes not presently due and
payable, Borrower owns and has good title to all of Borrower's properties free
and clear of all Security Interests, and has not executed any security documents
or financing statements relating to such properties. All of Borrower's
properties are titled in Borrower's legal name, and Borrower has not used or
filed a financing statement under any other name for at least the last five (5)
years.

Hazardous Substances. Except as disclosed to and acknowledged by Lender in
writing, Borrower represents and warrants that: (1) During the period of
Borrower's ownership of the Collateral, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened release of any
Hazardous Substance by any person on, under, about or from any of the
Collateral. (2) Borrower has no knowledge of, or reason to believe that there
has been (a) any breach or violation of any Environmental Laws; (b) any use,
generation, manufacture, storage, treatment, disposal, release or threatened
release of any Hazardous Substance on, under, about or from the Collateral by
any prior owners or occupants of any of the Collateral; or (c) any actual or
threatened litigation or claims of any kind by any person relating to such
matters. (3) Neither Borrower nor any tenant, contractor, agent or other
authorized user of any of the Collateral shall use, generate, manufacture,
store, treat, dispose of or release any Hazardous Substance on, under, about or
from any of the Collateral; and any such activity shall be conducted in
compliance with all applicable federal, state, and local Jaws, regulations, and
ordinances, including without limitation all Environmental Laws. Borrower
authorizes Lender and its agents to enter upon the Collateral to make such
inspections and tests as Lender may deem appropriate to determine compliance of
the Collateral with this section of the Agreement. Any Inspections or tests made
by Lender shall be at Borrower's expense and for Lender's purposes only and
shall not be construed to create any responsibility or liability on the part -of
Lender to Borrower or to any other person. The representations and warranties
contained. herein are based on Borrower's due diligence in investigating the
Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1)
releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other costs
under any such laws, and (2) agrees to indemnify, defend, and hold harmless
Lender against any and all claims, losses, liabilities, damages, penalties, and
expenses which Lender may directly or indirectly sustain or suffer resulting
from a breach of this section of the Agreement or as a consequence of any use,
generation. manufacture, storage, disposal, release or threatened release of a
hazardous waste or substance on the Collateral. The provisions of this section
of the Agreement, including the obligation to indemnify and defend, shall
survive the payment of the Indebtedness and the termination, expiration or
satisfaction of this Agreement and shall not be affected by Lender's acquisition
of any interest in any of· the Collateral, whether by foreclosure or otherwise.
 
 
 

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BUSINESS LOAN AGREEMENT
 

Loan No: 43011861 (Continued) Page 2

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Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against Borrower
is pending or threatened, and no other event has occurred which may materially
adversely affect Borrower's financial condition or properties, other than
litigation, claims, or other events, if any, that have been disclosed to and
acknowledged by Lender in writing.

Taxes. To the best of Borrower(s) knowledge, all of Borrower(s) tax returns and
reports that are or were required to be filed, have been filed, and all taxes,
assessments and other governmental charges have been paid In full, except those
presently being or to be contested by Borrower in good faith in the ordinary
course of business and for which adequate reserves have been provided.

Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or permitted
the filing or attachment of any Security Interests on or affecting any of the
Collateral directly or indirectly securing repayment of Borrower's Loan and
Note, that would be prior or that may In any way be superior to Lender's
Security Interests and rights in and to such Collateral.

Binding Effect. This Agreement, the Note, all Security Agreements (if any), and
all Related Documents are binding upon the signers thereof, as well as upon
their successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long
as this Agreement remains in effect, Borrower will:

Notices of Claims and Litigation. Promptly Inform Lender in writing of (1) all
material adverse changes In Borrower's financial condition, and (2) all existing
and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial condition
of any Guarantor.

Financial Records. Maintain its books and records in accordance with GAAP,
applied on a consistent basis, and permit Lender to examine and audit Borrower's
books and records at all reasonable limes.

Financial Statements. Furnish Lender with the following:
 
Annual Statements. As soon as available, but in no event later than sixty (60)
days after the end of each fiscal year, Borrower's balance sheet and income
statement for the year ended, prepared by Borrower.

Tax Returns. As soon as available, but in no event later than sixty (80) days
after the applicable filing date for the tax reporting period ended, Federal and
other governmental tax returns, prepared by a certified public accountant
satisfactory to Lender.

All financial reports required to be provided under this Agreement shall be
prepared in accordance with GAAP, applied on a consistent basis, and certified
by Borrower as being true and correct.

Additional Information. Furnish such additional information and statements, as
Lender may request from time to lime.

Insurance. Maintain fire and other risk insurance, public liability insurance,
and such other insurance as Lender may require with respect to Borrower's
properties and operations, in form, amounts, coverage and with insurance
companies acceptable to Lender. Borrower, upon request of Lender, will deliver
to Lender from lime to lime the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverage will not be
cancelled or diminished without at least thirty (30) days prior written notice
to Lender. Each Insurance policy also shall Include an endorsement providing
that coverage In favor of Lender will not be Impaired In any way by any act,
omission or default of Borrower or any other person. In connection with all
policies covering assets in which Lender holds or is offered a security interest
for the Loans, Borrower will provide Lender with such lender's loss payable or
other endorsements as Lender may require.

Insurance Reports. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, Including without limitation the following: (1) the name of the
insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties
insured; (5) the then current property values on the basis of which insurance
has been obtained, and the manner of determining those values', and (6) the
expiration date of the policy. In addition, upon request of Lender (however not
more often than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value or
replacement cost of any Collateral. The cost of such appraisal shall be paid by
Borrower.

 
 

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Other Agreements. Comply with all terms and conditions of all other agreements,
whether now or hereafter existing, between Borrower and any other party and
notify Lender immediately in writing of any default in connection with any other
such agreements.
 
Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations,
unless specifically consented to the contrary by Lender In writing.

Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and
obligations, including without limitation all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
allot, and all lawful claims that, If unpaid, might become a lien or charge upon
any of Borrower's properties, income, or profits. Provided however, Borrower
will not be required to pay and discharge any such assessment, tax, charge,
levy, lien or claim so long as (1) the legality of the same shall be contested
In good faith by appropriate proceedings, and (2) Borrower shall have
established on Borrower's books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with GAAP.

Performance. Perform and comply, in a timely manner, with all terms, conditions,
and provisions set forth in this Agreement, in the Related Documents, and In all
other Instruments and agreements between Borrower and Lender. Borrower shall
notify Lender Immediately in writing of any default in connection with any
agreement.

Operations. Maintain executive and management personnel with substantially the
same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner.

Environmental Studies. Promptly conduct and complete, at Borrower(s) expense,
all such investigations, studies, samplings and testings as may be requested by
Lender or any governmental authority relative to any substance, or any waste or
by-product of any substance defined as toxic or a hazardous substance under
applicable federal, state, or local law, rule, regulation, order or directive,
at or affecting any property or any facility owned, leased or used by Borrower.

Compliance with Governmental Requirements. Comply with all laws, ordinances, and
regulations, now or hereafter in effect, of all governmental authorities
applicable to the conduct of Borrower's properties, businesses and operations,
and to the use or occupancy of the Collateral, including without limitation, the
Americans With Disabilities Act. Borrower may contest in good faith any such
law, ordinance, or regulation and withhold compliance during any proceeding,
including appropriate appeals, so long as Borrower has notified Lender In
writing prior to doing so and so long as, in Lender's sole opinion, Lender's
interests in the Collateral are not jeopardized. Lender may require Borrower to
post adequate security or a surety bond, reasonably satisfactory to Lender, to
protect Lender's interest.
 
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower(s) other
properties and to examine or audit Borrower(s) books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts, and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of any records
it may request, all at Borrower's expense.

Environmental Compliance and Reports. Borrower shall comply in all respects with
any and all Environmental Laws; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on Borrower(s) part or on the
part of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant 10 and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
Instrumentality concerning any intentional or unintentional action or omission
on Borrower(s) part in connection with any environmental activity whether or not
there is damage to the environment and/or other natural resources.

Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, assignments, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to perfect
all Security Interests.

 
 
 

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BUSINESS LOAN AGREEMENT
 

Loan No: 43011861 (Continued) Page 3

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LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Borrower fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Borrower's failure to discharge or pay when due· any amounts
Borrower is required to discharge or pay under this Agreement or any Related
Documents, Lender on Borrower's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and
other claims, at any time levied or placed on any Collateral and paying all
costs for insuring, maintaining and preserving any Collateral. All such
expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Borrower. All such expenses will become a
part of the Indebtedness and, at Lender's option, will (A) be payable on demand;
(B) be added to the balance of the Note and be apportioned among and be payable
with any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable al the Note's
maturity.

NEGATIVE COVENANTS. Borrower covenants end agrees with Lender that while this
Agreement Is In effect, Borrower shall not without the prior written consent of
Lender:

Indebtedness and Liens. (1) Except for trade debt incurred in the normal course
of business and Indebtedness to Lender contemplated by this Agreement, create,
"Incur or assume indebtedness for borrowed money, including capital leases, (2)
sell, transfer, mortgage, assign, pledge, lease, grant a security Interest in,
or encumber any of Borrower's assets (except as allowed as Permitted Liens), or
(3) sell with recourse any of Borrower's accounts, except to Lender.

Continuity of Operations. (1) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (2) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change its name, dissolve or transfer or sell Collateral out of the
ordinary course of business, or (3) pay any dividends on Borrower's stock (other
than dividends payable in its stock), provided, however that notwithstanding the
foregoing, but only so long as no Event of Default has occurred and is
continuing or would result from the payment of dividends, if Borrower is a
"Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as
amended), Borrower may pay cash dividends on its stock to its shareholders from
time to time in amounts necessary to enable the shareholders to pay income taxes
and make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of Borrower's
stock, or purchase or retire any of Borrower's outstanding shares or alter or
amend Borrower's capital structure.

Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or
assets to any other person, enterprise or entity, (2) purchase, create or
acquire any interest in any other enterprise or entity, or (3) incur any
obligation as surety or guarantor other than in the ordinary course of business.

Agreements. Enter into any agreement containing any provisions which would be
violated or breached by the performance of Borrower's obligations under this
Agreement or in connection herewith.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(A) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes
Incompetent or becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse
change in Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; or (D) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender; or (E) Lender In
good faith deems itself insecure, even though no Event of Default shall have
occurred,

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open In the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts, and, at Lender's option, to
administratively freeze all such accounts to allow Lender to protect Lender's
charge and setoff rights provided in this paragraph.

DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:

Payment Default. Borrower falls to make any payment when due under the Loan.

Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in any of the
Related Documents or to comply with or to perform any term, obligation, covenant
or condition contained in any other agreement between Lender and Borrower.

 
 

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False Statements. Any warranty, representation or statement made or furnished to
Lender by Borrower or on Borrower's behalf under this Agreement or the Related
Documents is false or misleading in any material respect, either now or at the
time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower's existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any part
of Borrower's property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding under any bankruptcy or
Insolvency laws by or against Borrower.

Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (Including failure of any collateral
document to create a valid and perfected security interest or lien) at any time
and for any reason.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or by any governmental agency against
any collateral securing the Loan. This includes a garnishment of any of
Borrower's accounts, including deposit accounts, with Lender. However, this
Event of Default shall not apply if there is a good faith dispute by Borrower as
to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Borrower gives Lender written notice of
the creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, in its sole discretion, as being an adequate reserve or bond for the
dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness.

Change in Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the Loan
is impaired.

Insecurity. Lender in good faith believes itself insecure.

Right to Cure. If any default, other than a default on Indebtedness, is curable
and if Borrower or Grantor, as the case may be, has not been given a notice of a
similar default within the preceding twelve (12) months, It may be cured If
Borrower or Grantor, as the case may be, after Lender sends written notice to
Borrower or Grantor, as the case may be, demanding cure of such default (1) cure
the default within twenty (20) days; or (2) if the cure requires more than
twenty (20) days, immediately initiate steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter continue and
complete all reasonable and necessary steps sufficient to produce compliance  as
soon as reasonably practical.

EFFECT OF AN EVENT OF DEFAULT. if any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
further Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.

MATERIALITY CLAUSE. Borrower's actions in the ordinary course of business that
do not have the effect of creating a material adverse change in the Borrower's
financial conditions are permitted, irrespective of any restrictions contained
herein.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

Amendments. This Agreement, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth in
this Agreement. No alteration of or amendment to this Agreement shall be
effective unless given in writing and signed by the party or parties sought to
be charged or bound by the alteration or amendment.

 
 
 

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BUSINESS LOAN AGREEMENT
 

Loan No: 43011861 (Continued) Page 4

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Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's
reasonable costs and expenses, including Lender's attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this Agreement.
Lender may hire or pay someone else to help enforce this Agreement, and Borrower
shall pay the reasonable costs and expenses of such enforcement. Costs and
expenses include Lender's attorneys' fees and legal expenses whether or not
there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Borrower also shall pay all court costs and such additional fees as may be
directed by the court.

Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.

Consent to Loan Participation. Borrower agrees and consents to Lender's sale or
transfer, whether now or later, of one or more participation interests in the
Loan to one or more purchasers, whether related or unrelated to Lender. Lender
may provide, without any limitation whatsoever, to anyone or more purchasers, or
potential purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy Borrower may have with respect to such matters.
Borrower additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such participation
Interests. Borrower also agrees that the purchasers of any such participation
Interests will be considered as the absolute owners of such interests in the
Loan and will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower further
waives all rights of offset or counterclaim that it may have now or later
against Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loan irrespective of the failure or insolvency
of any holder of any interest in the Loan. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have against
Lender.

Governing Law. This Agreement will be governed by federal law applicable to
Lender and, to the extent not preempted by federal law, the laws of the State of
Colorado without regard to its conflicts of law provisions. This Agreement has
been accepted by Lender in the State of Colorado.

Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the courts of Boulder County, State of Colorado.

No Waiver by Lender. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate as
a waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor, shall constitute a
waiver of any of Lender's rights or of any of Borrower's or any Grantor's
obligations as to any future transactions. Whenever the consent of Lender is
required under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted or
withheld in the sale discretion of Lender.

Notices. Any notice required to be given under this Agreement shall be given in
writing, and shall be effective when actually delivered, when actually received
by telefacsimile (unless otherwise required by law), when deposited with a
nationally recognized overnight courier, or, if mailed, when deposited in the
United States mail, as first class, certified or registered mall postage
prepaid, directed to the addresses shown near the beginning of this Agreement.
Any party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose of the
notice is to change the party's address. For notice purposes, Borrower agrees to
keep Lender informed at all times of Borrower's current address. Unless
otherwise provided or required by law, if there is more than one Borrower, any
notice given by Lender to any Borrower Is deemed to be notice given to all
Borrowers.

Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be illegal, invalid, or unenforceable as to any circumstance, that
finding shall not make the offending provision illegal, invalid, or
unenforceable as to any other circumstance. If feasible, the offending provision
shall be considered modified so that it becomes legal, valid and enforceable. If
the offending provision cannot be so modified, it shall be considered deleted
from this Agreement. Unless otherwise required by law, the illegality,
invalidity, or unenforceability of any provision of this Agreement shall not
affect the legality, validity or enforceability of any other provision of this
Agreement.

Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without limitation
any representation, warranty or covenant, the word "Borrower" as used in this
Agreement shall include all of Borrower's subsidiaries and affiliates.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other financial
accommodation to any of Borrower's subsidiaries or affiliates.

 
 

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Successors and Assigns. All covenants and agreements by or on behalf of Borrower
contained in this Agreement or any Related Documents shall bind Borrower's
successors and assigns and shall inure to the benefit of Lender and its
successors and assigns. Borrower shall not, however, have the right to assign
Borrower's rights under this Agreement or any interest therein, without the
prior written consent of Lender.

Survival of Representations and Warranties. Borrower understands and agrees that
in extending Loan Advances, Lender is relying on all representations,
warranties, and covenants made by Borrower in this Agreement or in any
certificate or other instrument delivered by Borrower to Lender under this
Agreement or the Related Documents. Borrower further agrees that regardless of
any investigation made by Lender, all such representations, warranties and
covenants will survive the extension of Loan Advances and delivery to Lender of
the Related Documents, shall be continuing in nature, shall be deemed made and
redated by Borrower at the time each Loan Advance is made, and shall remain in
full force and effect until such time as Borrower's Indebtedness shall be paid
in full, or until this Agreement shall be terminated in the manner provided
above, whichever is the last to occur.

Time is of the Essence. Time is of the essence in the performance of this
Agreement.

Waive Jury, All parties to this Agreement hereby waive the right to any Jury
trial in any action, proceeding, or counterclaim brought by any party against
any other party.

DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. Accounting
words and terms not otherwise defined in this Agreement shall have the meanings
assigned to them in accordance with generally accepted accounting principles as
in effect on the date of this Agreement:

Advance. The word "Advance" means a disbursement of Loan funds made, or to be
made, to Borrower or on Borrower's behalf on a line of credit or multiple
advance basis under the terms and conditions of this Agreement.

Agreement. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time, together
with all exhibits and schedules attached to this Business Loan Agreement from
time to time.

Borrower. The word "Borrower" means AeroGrow International, Inc. and includes
all co-signers and co-makers signing the Note and all their successors and
assigns.

Collateral. The word "Collateral" means all property and assets granted as
collateral security for a Loan, whether real or personal property, whether
granted directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage, collateral
mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage,
collateral chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien, charge, lien or title retention contract,
lease or consignment Intended as a security device, or any other security or
lien interest whatsoever, whether created by law, contract, or otherwise.

Environmental Laws. The words "Environmental Laws" mean any and all state,
federal and local statutes, regulations and ordinances relating to the
protection of human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments
and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other
applicable state or federal laws, rules, or regulations adopted pursuant
thereto.

Event of Default. The words "Event of Default" mean any of the events of default
set forth in this Agreement in the default section of this Agreement.

GAAP. The word "GAAP" means generally accepted accounting principles.

Grantor. The word "Grantor" means each and all of the persons or entities
granting a Security Interest In any Collateral for the Loan, including without
limitation all Borrowers granting such a Security Interest.

Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation
party of any or all of the Loan.

Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender,
including without limitation a guaranty of all or part of the Note.
 
 
 

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BUSINESS LOAN AGREEMENT
 

Loan No: 43011861 (Continued) Page 5

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Hazardous Substances. The words "Hazardous Substances" mean materials that,
because of their quantity, concentration or physical, chemical or infectious
characteristics, may cause or pose a present or potential hazard to human health
or the environment when improperly used, treated, stored, disposed of,
generated, manufactured, transported or otherwise handled. The words "Hazardous
Substances" are used in their very broadest sense and include without limitation
any and all hazardous or toxic substances, materials or waste as defined by or
listed under the Environmental Laws. The term "Hazardous Substances" also
includes, without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos,

Indebtedness, The word "Indebtedness" means the indebtedness evidenced by the
Note or Related Documents, including all principal and interest together with
all other indebtedness and costs and expenses for which Borrower is responsible
under this Agreement or under any of the Related Documents.

Lender. The word "Lender" means FIRST WESTERN TRUST BANK, Its successors and
assigns,

Loan. The word "Loan" means any and all Loans and financial accommodations from
Lender to Borrower whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations described
herein or described on any exhibit or schedule attached to this Agreement from
time to time.

Note. The word "Note" means the Note executed by AeroGrow International, Inc. in
the principal amount of $2,000,000.00 dated May 21, 2010, together with all
renewals of, extensions of, modifications of, refinancing of, consolidations of,
and substitutions for the note or credit agreement.

Permitted Liens. The words "Permitted Liens" mean (1) liens and security
interests securing Indebtedness owed by Borrower to Lender: (2) liens for taxes,
assessments, or similar charges either not yet due or being contested in good
faith: (3) liens of material men, mechanics, warehousemen, or carriers, or other
like liens arising in the ordinary course of business and securing obligations
which are not yet delinquent; (4) purchase money liens or purchase money
security interests upon or In any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the date of
this Agreement or permitted to be incurred under the paragraph of this Agreement
titled "Indebtedness and Liens": (5) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the Lender in
writing: and (6) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to the
net value of Borrower's assets.

Related Documents. The words "Related Documents" mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Loan.

Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements, understandings or
other agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.

Security Interest. The words '''Security Interest" mean, without limitation, any
and all types of collateral security, present and future, whether in the form of
a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment,
pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever whether created by law, contract,
or otherwise.
 
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS
DATED MAY 21, 2010. 
 
[aerogrow10-6img2.jpg]
                                                                        
 
 
 

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FIRST WESTERN TRUST BANK
PROMISSORY NOTE
 
 
Principal
$2,000,000.00
Loan Date
05-21-2010
Maturity
05-20-2011
Loan No
43011861
Call / Coll
Account
Officer
   520
Initials
References in the boxes above are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing .."***"  has been omitted due to text length
limitations.

 

Corporation:       AeroGrow International, Inc.           Lender:      FIRST
WESTERN TRUST BANK   6075 Longbow Drive, Ste 200      Boulder Branch   Boulder,
CO 80301        1155 Canyon Blvd.       Boulder, CO 80302       (303) 441-9400

 

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Principal 'Amount: $2,000,000.00   Date of Note: May 21, 2010

                                                                                                                           
PROMISE TO PAY. AeroGrow International, Inc. ("Borrower") promises to pay to
FIRST WESTERN TRUST BANK ("Lender"), or order, In lawful money of the United
States of America, the principal amount of Two Million & 00/100 Dollars
($2,000,000.00) or so much as may be outstanding, together with interest on the
unpaid outstanding principal balance of each advance, calculated as described in
the "INTEREST CALCULATION METHOD" paragraph using an Interest rate of 2.000"10
per annum based on a year of 360 days. Interest shall be calculated from the
date of each advance until repayment of each advance. The Interest rate may
change under the terms and conditions of the
"INTEREST AFTER DEFAULT" section.

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on May 20, 2011. In addition, Borrower will pay
regular monthly payments of all accrued unpaid interest due as of each payment
date, beginning June 21, 2010, with all subsequent Interest payments to be due
on the same day of each month after that. Unless otherwise agreed or required by
applicable law, payments will be applied first to any accrued unpaid Interest;
then to principal; then to any late charges; and then to any unpaid collection
costs. Borrower will pay Lender at Lender's address shown above or at such other
place as Lender may designate in writing.

MAXIMUM INTEREST RATE. Under no circumstances will the interest rate on this
Note exceed (except for any higher default rate shown below) the lesser of
18.000% per annum or the maximum rate allowed by applicable law.

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 3651360
basis; that is, by applying the ratio of the Interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. All interest payable under
this Note is computed using this method.

PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid interest.
Rather, early payments will reduce the principal balance due. Borrower agrees
not to send Lender payments marked "paid in full", "without recourse", or
similar language. If Borrower sends such a payment, Lender may accept it without
losing any of Lender's rights under this Note, and Borrower will remain
obligated to pay any further amount owed to Lender. All written communications
concerning disputed amounts, including any check or other payment instrument
that indicates that the payment constitutes "payment in full" of the amount owed
or that is tendered with other conditions or limitations or as full satisfaction
of a disputed amount must be mailed or delivered to: FIRST WESTERN TRUST BANK,
Boulder Branch, 1155 Canyon Blvd., Suite 300, Boulder, CO 80302.

LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment.

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final
maturity, the interest rate on this Note shall be increased by 4.000 percentage
points. However, in no event will the interest rate exceed the maximum interest
rate limitations under applicable law.

 
 

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DEFAULT. Each of the following shall constitute an event of default ("Event of
Default") under this Note:

Payment Default. Borrower fails to make any payment when due under this Note.

Other Defaults. Borrower fails to comply with or to perform any other term,
obligation. covenant or condition contained in this Note or in any of the
related documents or to comply with or to perform any term, obligation, covenant
or condition contained in any other agreement between Lender and Borrower.

False Statements. Any warranty, representation or statement made or furnished to
Lender by Borrower or on Borrower's behalf under this Note or the related
documents is false or misleading in any material respect, either now or at the
time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower's existence as a going
business, the Insolvency of Borrower, the appointment of a receiver for any part
of Borrower's property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Borrower.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or by any governmental agency against
any collateral securing the loan. This includes a garnishment of any of
Borrower's accounts, including deposit accounts, with Lender. However, this
Event of Default shall not apply if there is a good faith dispute by Borrower as
to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Borrower gives Lender written notice of
the creditor or forfeiture proceeding and deposits with Lender monies or
a surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, '10 its sole discretion, as being an adequate reserve or bond for the
dispute.

Events Affecting Guarantor, Any of the preceding events occurs with respect to
any guarantor, endorser, surety, or accommodation party of any of the
indebtedness or any guarantor, endorser, surety, or accommodation party dies or
becomes incompetent, or revokes or disputes the validity of, or liability under,
any guaranty of the indebtedness evidenced by this Note.

Change In Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
 
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of this
Note is impaired.

Insecurity. Lender in good faith believes itself insecure.

Cure Provisions. If any default, other than a default in payment is curable and
if Borrower has not been given a notice of a breach of the same provision of
this Note within the preceding twelve (12) months, it may be cured if Borrower,
after Lender sends written notice to Borrower demanding cure of such default:
(1) cures the default within twenty (20) days; or (2) if the cure requires more
than twenty (20) days, immediately initiates steps which Lender deems in
Lender's sole discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.

LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance under this Note and all accrued unpaid interest immediately due, and
then Borrower will pay that amount.

ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect
this Note if Borrower does not pay. Borrower will pay Lender the reasonable
costs of such collection. This includes, subject to any limits under applicable
law, Lender's attorneys' fees and Lender's legal expenses, whether or not there
is a lawsuit, including without limitation attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), and appeals. If not prohibited by applicable law, Borrower
also will pay any court costs, in addition to all other sums provided by law.

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Borrower against
the other.

GOVERNING LAW. This Note will be governed by federal law applicable to Lender
and, to the extent not preempted by federal law, the laws of the State of
Colorado without regard to its conflicts of law provisions. This Note has been
accepted by Lender In the State of Colorado.
 
 
 

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PROMISSORY NOTE
 

Loan No: 43011861 (Continued) Page 2

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CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the courts of Boulder County, State of Colorado.

RIGHT OF SET OFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts, and, at Lender's option, to
administratively freeze all such accounts to allow Lender to protect Lender's
charge and setoff rights provided in this paragraph.

COLLATERAL. Borrower acknowledges this Note is secured by the following
collateral described in the security instrument listed herein: deposit accounts
described In an Assignment of Deposit Account dated May 21, 2010.

LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts. may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (A) advanced in accordance
with the instructions of an authorized person or (B) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this Note
at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including dally computer print-outs.

CREDIT LINE ADVANCES/ACCESS TO PLEDGED ACCOUNT. Upon approval from Lender,
borrower may disburse from cash collateral account and FWTB commitment will
equal account balance at all times with a maximum advance amount of
$2,000,000.00.

MATERIALITY CLAUSE. Borrower's actions in the ordinary course of business that
do not have the effect of creating a material adverse change in the Borrower's
financial conditions are permitted, irrespective of any restrictions contained
herein.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and
upon Borrower's heirs, personal representatives, successors and assigns, and
shall inure to the benefit of Lender and Its successors and assigns.

NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES.
Please notify us if we report any inaccurate information about your account(s)
to a consumer reporting agency. Your written notice describing the specific
inaccuracy(ies) should be sent to us at the following address: FIRST WESTERN
TRUST BANK 1200 17th Street, Suite 2650 Denver, CO 80202.

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will
not affect the rest of the Note. Lender may delay or forgo enforcing any of its
rights or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed by
law, waive presentment, demand for payment, and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan or release any party or guarantor or collateral; or Impair, fail
to realize upon or perfect Lender's security Interest In the collateral: and
take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the
modification is made. The obligations under this Note are joint and several.
 
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGE • RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE. 
 
[aerogrow10-6img2.jpg]
 
 
 

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CONTROL AGREEMENT - DEPOSIT ACCOUNT
 
Principal
$2,000,000.00
Loan Date
05-21-2010
Maturity
05-20-2011
Loan No
43011861
Call / Coll
Account
Officer
   520
Initials
References in the boxes above are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing .."***"  has been omitted due to text length
limitations.

 

Debtor:       AeroGrow International, Inc.           Secured Party:      FIRST
WESTERN TRUST BANK   6075 Longbow Drive, Ste 200      Boulder Branch   Boulder,
CO 80301        1155 Canyon Blvd.       Boulder, CO 80302       (303) 441-9400

 

--------------------------------------------------------------------------------

 

Depository     First Western Trust Bank     Institution:     Attn: Loan Support
      1200 17th SI. #1050       Denver, CO 80202    

 
AGREEMENT. In consideration of the provisions of this Agreement, and for other
good and valuable consideration, which has been received by the parties, the
Debtor, the Secured Party, and the Depository Institution agree to all of the
provisions in this Agreement.
 
SECURITY INTEREST. The Debtor has given the Secured Party a security interest
in, and has pledged and assigned to the Secured Party, the following property
(the "Collateral"):

Account number(s) 2082526 with the Depository Institution, and all amendments,
extensions, renewals and replacements of the account(s) (all called the
"Account"), and all existing and future amounts in the Account, and all existing
and future interest and other earnings on the Account, and all proceeds.

The security interest, pledge and assignment are called the "Security Interest".
The Debtor and the Secured Party notify the Depository Institution of the
Security Interest, and the Depository Institution agrees that it has been
notified of the Security Interest.

CONTROL If the Collateral is one or more deposit accounts under Revised Article
9, by signing this Agreement; the Debtor, the Secured Party, and the Depository
Institution are giving the Secured Party Control over the Collateral, and are
perfecting the Security Interest in the Collateral by Control. Whether or not
the Collateral is a deposit account under Revised Article 9, the Depository
Institution will comply with all instructions originated by the Secured Party
directing disposition of the funds in the Account without any further consent by
the Debtor. This means that the Depository Institution will comply with all
orders, notices, requests and other instructions of the Secured Party relating
to the Collateral, including but not limited to orders, notices, requests and
other instructions to withdraw or transfer any Collateral, to redeem or
terminate the Account, and to pay or transfer any Collateral to the Secured
Party or any other person or entity. The Depository Institution will promptly
mark its records to register the Secured Party's Security Interest in the
Collateral.

RIGHTS OF DEBTOR AND OTHERS. Unless the Secured Party agrees in writing; (A) the
Depository Institution will not permit the Debtor or any other person or entity
except the Secured Party to withdraw or transfer any of the Collateral, and (8)
the Depository Institution will not otherwise comply with any order, notice,
request or other instruction from the Debtor or any other person or entity
except the Secured Party relating to any of the Collateral, and (C) the
Depository Institution will not pay or transfer any of the Collateral to the
Debtor or any other person or entity except the Secured Party or to any other
account except the Account. Unless the Secured Party agrees, the Depository
Institution will not honor any check or other item drawn on the Account or any
other withdrawal or transfer from the Account except to the Secured Party.

 
 

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REPRESENTATIONS AND AGREEMENTS. The Debtor and the Depository Institution
represent to the Secured Party, and agree that:

(A) No person or entity except the Secured Party has Control over any of the
Collateral. Neither the Debtor nor the Depository Institution has entered into
any acknowledgment or agreement (including but not limited to any control
agreement, pledged account agreement, blocked account agreement, or other
acknowledgment or agreement) that gives any person or entity except the Secured
Party (or acknowledges) Control over any of the Collateral or any security
interest, pledge, assignment, other interest, lien or other right or title in
any of the Collateral. Neither the Debtor nor the Depository Institution will
permit any person or entity except the Secured Party to have Control over any of
the Collateral or any security interest, pledge, assignment, other interest,
lien or other right or title in any of the Collateral. Neither the Debtor nor
the Depository Institution will enter into any acknowledgment or agreement
(including but not limited to any control agreement, pledged account agreement,
blocked account agreement, or other acknowledgment or agreement) that gives any
person or entity except the Secured Party (or acknowledges) Control over any of
the Collateral, or any security interest, pledge, assignment, other interest,
lien or other right or title in any of the Collateral. Unless the Secured Party
otherwise requests or agrees in writing, the Debtor is and will remain the sale
account holder of the Account. No person or entity (except the Debtor, the
Secured Party, and the Depository Institution) has made a claim against any of
the Collateral, or claims any security interest, pledge, assignment, other
interest, lien or other right or title in any of the Collateral. The Debtor and
the Depository Institution will immediately notify the Secured Party if any
person or entity (other than the Debtor, the Secured Party, or the Depository
Institution) makes a claim against any of the Collateral, or claims any security
interest, pledge, assignment, other interest, lien or other right or title in
any of the Collateral.

(B) The Depository Institution has not issued, and will not issue, any Security
for any of the Collateral, and the Depository Institution has not given, and
will not give, any Security for any of the Collateral to the Debtor or any other
person or entity.

(C) The Depository Institution agrees that all of the Depository Institution's
existing and future security interests, pledges, assignments, liens, claims,
rights of setoff and recoupment, and other right, title and interest in any of
the Collateral are and will remain fully subordinate to the Security Interest.
The Depository Institution will not assert or enforce any of the Depository
Institution's existing or future security interests, pledges, assignments,
liens, claims, rights of setoff or recoupment, or other right. title or interest
in any of the Collateral. But the Depository Institution may charge the Account
for the Depository Institution's standard account fees for the Account, and for
any checks and other items that are deposited in the Account and returned to the
Depository Institution unpaid. The Secured Party is not liable to the Depository
Institution for any fees, return checks, or other return items.

(D) The Depository Institution is a bank, as defined in Revised Article 9. The
State of Colorado is the Depository Institution's jurisdiction for purposes of
Revised Article 9.

(E) At the Secured Party's reque.st, the Depository Institution will send to the
Secured Party a copy of the Depository Institution's statements on the
Collateral and any other information about the Collateral. The Depository
Institution will comply with all of the Secured Party's other orders, notices,
requests and other instructions relating to any of the Collateral.

RIGHTS OF DEPOSITORY INSTITUTION. The Depository Institution does not have to
pay uncollected funds. The Depository Institution does not have to make funds
available before it Is required to do so under federal law. The Depository
Institution may comply with all applicable laws, regulations, rules, court
orders, and other legal process.

TAX. REPORTING. Until the Secured Party notifies the Depository Institution to
use a different name and number, the Depository Institution will make all
reports relating to the Collateral to all federal, state and local tax
authorities under the name and tax identification number of the Debtor.

OTHER PROVISIONS. No provision in this Agreement can be changed, waived, or
terminated, except by a writing executed by the Debtor, the Secured Party, and
the Depository Institution, except that this Agreement will be terminated by a
writing signed by the Secured Party and sent to the Depository Institution in
which the Secured Party releases the Depository Institution from any further
obligation to comply with instructions originated by the Secured Party with
respect to all of the Collateral. No provision of this Agreement will be
affected by any act or omission by any person or entity. All notices, orders,
requests, and other instructions and communications to any party under this
Agreement will be delivered, or mailed to such party's address stated above, or
to the other address that such party may designate in a written notice that
complies with this Agreement. This Agreement binds and benefits the parties and
their respective heirs, representatives, successors and assigns. This Agreement
may be enforced in an action for specific performance. This Agreement is
governed by the laws of the State of Colorado. This Agreement may be signed in
counterparts, and all counterparts together are the same Agreement.

DEFINITIONS. The following words shall have the following meanings when used in
this Agreement:

Agreement. The word "Agreement" means this Control Agreement - Deposit Account,
as this Control Agreement - Deposit Account may be amended or modified from time
to time, together with all exhibits and schedules attached to this Control
Agreement - Deposit Account from time to time.

Control. The word "Control" means control of a deposit account, as defined in
Revised Article 9.

Debtor. The word "Debtor" means each and all of the persons or entities shown
above as Debtor. All agreements of the Debtor in this

 
 

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CONTROL AGREEMENT - DEPOSIT ACCOUNT

Loan No: 43011861 (Continued) Page 2

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 
Agreement are joint, several, and joint and several.

Depository Institution. The words "Depository Institution" mean the Depository
Institution shown above.

Revised Article 9. The words "Revised Article 9" mean Revised Article 9 of the
Uniform Commercial Code.

Secured Party. The words "Secured Party" mean the Secured Party shown above.

Security. The word "Security" means Security as defined in Article 8 of the
Uniform Commercial Code.
 
This Agreement is dated May 21, 2010.
 
[aerogrow10-6img3.jpg]
 
 
 
 

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  DEPOSITORY INSTITUTION:
 
 
 
 
 FIRST WESTERN TRUST BANK
 
By:____________________________________________
        Authorized Signer for First Western Trust Bank
 

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CORPORATE ACKNOWLEDGMENT
 
STATE OF_____________________________                        )
 
)SS
 
COUNTY  OF___________________________                        )
 
On this ______________________________ day of _________________________, 20
________ before me, the undersigned Notary Public, personally appeared
______________________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________
and known to me to be (an) authorized agent(s) of the corporation that executed
the Control Agreement - Deposit Account and acknowledged the Agreement to be the
free and voluntary act and deed of the corporation, by authority of its Bylaws
or by resolution of its board of directors, for the uses and purposes therein
mentioned, and on oath stated that he or she/they is/are authorized to execute
this Agreement and in fact executed the Agreement on behalf of the corporation.

By____________________________________________________              Residing
at___________________________________________________
Notary Public in and for the State
of__________________________                My commission
expires________________________________________
 

 
LASER PRO lending. Ver. 5.51.00.002 Copr. Harland Financial, Solutions, 1997.
2010. All Right Reserved. CO C:\LASERPRO\CFI\LPL\C10.FC TR·2636 PR-6
 
 
 

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ASSIGNMENT OF DEPOSIT ACCOUNT
 
Principal
$2,000,000.00
Loan Date
05-21-2010
Maturity
05-20-2011
Loan No
43011861
Call / Coll
Account
Officer
   520
Initials
References in the boxes above are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing .."***"  has been omitted due to text length
limitations.

 

Grantor:       AeroGrow International, Inc.           Lender:      FIRST WESTERN
TRUST BANK   6075 Longbow Drive, Ste 200      Boulder Branch   Boulder, CO
80301        1155 Canyon Blvd.       Boulder, CO 80302       (303) 441-9400

--------------------------------------------------------------------------------

 
THIS ASSIGNMENT OF DEPOSIT ACCOUNT dated May 21, 2010. is made and executed
between AeroGrow International, Inc. ("Grantor") and FIRST WESTERN TRUST BANK
("Lender").

ASSIGNMENT. For valuable consideration, Grantor assigns and grants to Lender a
security interest in the Collateral, including without limitation the deposit
accounts described below, to secure the Indebtedness and agrees that Lender
shall have the rights stated in this Agreement with respect to the Collateral,
in addition to all other rights which Lender may have by law.

COLLATERAL DESCRIPTION. The word "Collateral" means the following described
'deposit account ("Account"):

Checking Account Number 2082526 with Lender with an approximate balance of
$2,000,000.00

together with (A) all interest, whether now accrued or hereafter accruing; (B)
all additional deposits hereafter made to the Account; (C) any and all proceeds
from the Account; and (D) all renewals, replacements and substitutions for any
of the foregoing.

CROSS·COLLATERALIZATION. In addition to the Note, this Agreement secures all
obligations, debts and liabilities, plus interest thereon, of Grantor to Lender,
or anyone or more of them, as well as all claims by Lender against Grantor or
anyone or more of them, whether now existing or hereafter arising, whether
related or unrelated to the purpose of the Note, whether voluntary or otherwise,
whether due or not due, direct or indirect, determined or undetermined, absolute
or contingent, liquidated or unliquidated, whether Grantor may be liable
individually or jointly with others, whether obligated as guarantor, surety,
accommodation party or otherwise, and whether recovery upon such amounts may be
or hereafter may become barred by any statute of limitations, and whether the
obligation to repay such amounts may be or hereafter may become otherwise
unenforceable.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Grantor's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Grantor holds
jointly with someone else and all accounts Grantor may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Grantor authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts, and, at Lender's option, to
administratively freeze all such accounts to allow Lender to protect Lender's
charge and setoff rights provided in this paragraph.

GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With
respect to the Collateral, Grantor represents and promises to Lender that:

Ownership. Grantor is the lawful owner of the Collateral free and clear of all
loans, liens, encumbrances, and claims except as disclosed to and accepted by
Lender in writing.

Right to Grant Security Interest. Grantor has the full right, power, and
authority to enter into this Agreement and to assign the Collateral to Lender.
 
No Prior Assignment. Grantor has not previously granted a security interest in
the Collateral to any other creditor.

No Further Transfer. Grantor shall not sell, assign, encumber, or otherwise
dispose of any of Grantor's rights in the Collateral except as provided in this
Agreement.

 
 

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No Defaults. There are no defaults relating to the Collateral, and there are no
offsets or .counterclaims to the same. Grantor will strictly and promptly do
everything required of Grantor under the terms, conditions, promises, and
agreements contained in or relating to the Collateral.

Proceeds. Any and all replacement or renewal certificates, instruments, or other
benefits or proceeds related to the Collateral that are received by Grantor
shall be held by Grantor in trust for Lender and immediately shall be delivered
by Grantor to Lender to be held as part of the Collateral.

Validity; Binding Effect. This Agreement is binding upon Grantor and Grantor's
successors and assigns and is legally enforceable in accordance with its terms.

Financing Statements. Grantor authorizes Lender to file a UCC financing
statement, or alternatively, a copy of this Agreement to perfect Lender's
security interest. At Lender's request, Grantor additionally agrees to sign all
other documents that are necessary to perfect, protect, and continue Lender's
security interest in the Property. Grantor will pay all filing fees, title
transfer fees, and other fees and costs involved unless prohibited by law or
unless Lender is required by law to pay such fees and costs. Grantor irrevocably
appoints Lender to execute documents necessary to transfer title if there is a
default Lender may file a copy of this Agreement as a financing statement. If
Grantor changes Grantor's name or address, or the name or address of any person
granting a security interest under this Agreement changes, Grantor will promptly
notify the Lender of such change.

LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL. While this
Agreement is in effect, Lender may retain the rights to possession of the
Collateral, together with any and all evidence of the Collateral, such as
certificates or passbooks. This Agreement will remain in effect until (a) there
no longer is any Indebtedness owing to Lender; (b) all other obligations secured
by this Agreement have been fulfilled; and (c) Grantor, in writing, has
requested from Lender a release of this Agreement.

LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the CoJ1ateral or if Grantor fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Grantor's failure to discharge or pay when due any amounts
Grantor is required to discharge or pay under this Agreement or any Related
Documents, Lender on Grantor's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and
other claims, at any time levied or placed on the Collateral and paying all
costs for insuring, maintaining and preserving the Collateral. All such
expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses will become a part
of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B)
be added to the balance of the Note and be apportioned among and be payable with
any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable at the Note's
maturity. The Agreement also will secure payment of these amounts. Such right
shall be in addition to all other rights and remedies to which Lender may be
entitled upon Default.

LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care
in the physical preservation and custody of any certificate or passbook for the
Collateral but shall have no other obligation to protect the Collateral or its
value. In particular, but without limitation, Lender shall have no
responsibility (A) for the collection or protection of any income on the
Collateral; (B) for the preservation of rights against issuers of the Collateral
or against third persons; (C) for ascertaining any maturities, conversions,
exchanges, offers, tenders, or similar matters relating to the Collateral; nor
(0) for informing the Grantor about any of the above, whether or not Lender has
or is deemed to have knowledge of such matters.

DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:

Payment Default. Grantor fails to make any payment when due under the
Indebtedness.

Other Defaults. Grantor fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in any of the
Related Documents or to comply with or to perform any term, obligation, covenant
or condition contained in any other agreement between Lender and Grantor.

False Statements. Any warranty, representation or statement made or furnished to
Lender by Grantor or on Grantor's behalf under this Agreement or the Related
Documents is false or misleading in any material respect, either now or at the
time made or furnished or becomes false or misleading at any time thereafter.

 
 

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ASSIGNMENT OF DEPOSIT ACCOUNT        
                                               

Loan No: 43011861 (Continued) Page 2

 
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
document to create a valid and perfected security interest or lien) at any time
and for any reason.

Insolvency. The dissolution or termination of Grantor's existence as a going
business, the insolvency of Grantor, the appointment of a receiver for any part
of Grantor's property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Grantor.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Grantor or by any governmental agency against
any collateral securing the Indebtedness. This includes a garnishment of any of
Grantor's accounts, including deposit accounts, with Lender. However, this Event
of Default shall not apply if there is a good faith dispute by Grantor as to the
validity or reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the creditor
or forfeiture proceeding and deposits with Lender monies or a surety bond for
the creditor or forfeiture proceeding, in an amount determined by Lender, in its
sale discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to
any guarantor, endorser, surety, or accommodation party of any of the
Indebtedness or guarantor, endorser, surety, or accommodation party dies or
becomes incompetent or revokes or disputes the validity of, or liability under,
any Guaranty of the Indebtedness.

Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.

Insecurity. Lender in good faith believes itself insecure,

Cure Provisions. If any default, other than a default in payment is curable and
if Grantor has not been given a notice of a breach of the same provision of this
Agreement within the preceding twelve (12) months, it may be cured if Grantor,
after Lender sends written notice to Grantor demanding cure of such default: (1)
cures the default within twenty (20) days; or (2) if the cure requires more than
twenty (20) days, immediately initiates steps which Lender deems in Lender's
sole discretion to be sufficient to cure the default and thereafter continues
and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.

RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of an Event of Default, or
at any time thereafter, Lender may exercise anyone or more of the following
rights and remedies, in addition to any rights or remedies that may be available
at law, in equity, or otherwise:

Accelerate Indebtedness. Lender may declare all Indebtedness of Grantor to
Lender immediately due and payable, without notice of any kind to Grantor.

Application of Account Proceeds. Lender may take directly all funds in the
Account and apply them to the Indebtedness. If the Account is subject to an
early withdrawal penalty, that penalty shall be deducted from the Account before
its application to the Indebtedness, whether the Account is with Lender or some
other institution. Any excess funds remaining after application of the Account
proceeds to the Indebtedness will be paid to Grantor as the interests of Grantor
may appear. Grantor agrees, to the extent permitted by law, to pay any
deficiency after application of the proceeds of the Account to the Indebtedness.
Lender also shall have all the rights of a secured party under the Colorado
Uniform Commercial Code, even if the Account is not otherwise subject to such
Code concerning security interests, and the parties to this Agreement agree that
the provisions of the Code giving rights to a secured party shall nonetheless be
a part of this Agreement.

Transfer Title. Lender may effect transfer of title upon sale of all or part of
the Collateral. For this purpose, Grantor irrevocably appoints Lender as
Grantor's attorney-in-fact to execute endorsements, assignments and instruments
in the name of Grantor and each of them (if more than one) as shall be necessary
or reasonable.

Other Rights and Remedies. Lender shall have and may exercise any or all of the
rights and remedies of a secured creditor under the provisions of the Colorado
Uniform Commercial Code, at law, in equity, or otherwise.

 
 

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Deficiency Judgment. If permitted by applicable law, Lender may obtain a
judgment for any deficiency remaining in the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights provided in
this section.

Election of Remedies. Except as may be prohibited by applicable law, all of
Lender's rights and remedies, whether evidenced by this Agreement or by any
other writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Grantor under this Agreement after Grantor's failure to
perform, shall not affect Lender's right to declare a default and exercise its
remedies.

Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by
this Agreement or by any other writing, shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement, after
Grantor's failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies,

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement

Amendments. This Agreement, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth in
this Agreement. No alteration of or amendment to this Agreement shall be
effective unless given in writing and signed by the party or parties sought to
be charged or bound by the alteration or amendment.

Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's
reasonable costs and expenses, including Lender's attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this Agreement.
Lender may hire or pay someone else to help enforce this Agreement, and Grantor
shall pay the reasonable costs and expenses of such enforcement. Costs and
expenses include Lender's attorneys' fees and legal expenses whether or not
there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Grantor also shall pay all court costs and such additional fees as may be
directed by the court.

Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.

Governing Law. This Agreement will be governed by federal law applicable to
Lender and, to the extent not preempted by federal law, the laws of the State of
Colorado without regard to its conflicts of law provisions. This Agreement has
been accepted by Lender In the State of Colorado.

Choice of Venue. If there is a lawsuit, Grantor agrees upon Lender's request to
submit to the jurisdiction of the courts of Boulder County, State of Colorado.

No Waiver by Lender. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate as
a waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of Lender's rights or of
any of Grantor's obligations as to any future transactions. Whenever the consent
of Lender is required under this Agreement, the granting of such consent by
Lender in any instance shall not constitute continuing -consent to Subsequent
instances where such consent is required and in all cases such consent may be
granted or withheld in the sole discretion of Lender.

Notices. Any notice required to be given under this Agreement shall be given in
writing, and shall be effective when actually delivered, when actually received
by telefacsimile (unless otherwise required by law), when deposited with a
nationally recognized overnight courier, or, if mailed, when deposited in the
United States mail, as first class, certified or registered mail postage
prepaid, directed to the addresses shown near the beginning of this Agreement.
Any party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose of the
notice is to change the party's address. For notice purposes, Grantor agrees to
keep Lender informed at all times of Grantor's current address. Unless otherwise
provided or required by law, if there is more than one Grantor, any notice given
by Lender to any Grantor is deemed to be notice given to all Grantors.

Power of Attorney. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (1) to demand, collect, receive, receipt for, sue and recover all
sums of money or other property which may now or hereafter become due, owing or
payable from the Collateral; (2) to execute, sign and endorse any and all
claims, instruments, receipts, checks, drafts or warrants issued in payment for
the Collateral; (3) to settle or compromise any and all claims arising under the
Collateral, and in the place and stead of Grantor, to execute and deliver its
release and settlement for the claim; and (4) to file any claim or claims or to
take any action or institute or take part in any proceedings, either in its own
name or in the name of Grantor, or otherwise, which in the  discretion of Lender
may seem to be necessary or advisable. This power is given as security for the
Indebtedness, and the authority hereby conferred is and shall be irrevocable and
shall remain in full force and effect until renounced by Lender.
 
 
 

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ASSIGNMENT OF DEPOSIT ACCOUNT
                                                    

Loan No: 43011861 (Continued) Page 3

Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be illegal, invalid, or unenforceable as to any circumstance, that
finding shall not make the offending provision illegal, invalid, or
unenforceable as to any other circumstance. If feasible, the offending provision
shall be considered modified so that it becomes legal, valid and enforceable. If
the offending provision cannot be so modified, it shall be considered deleted
from this Agreement. Unless otherwise required by law, the illegality,
invalidity, or unenforceability of any provision of this Agreement shall not
affect the legality, validity or enforceability of any other provision of this
Agreement.

Successors and Assigns. Subject to any limitations stated in this Agreement on
transfer of Grantor's interest, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns. If ownership of the
Collateral becomes vested in a person other than Grantor, Lender, without notice
to Grantor, may deal with Grantor's successors with reference to this Agreement
and the Indebtedness by way of forbearance or extension without releasing
Grantor from the obligations of this Agreement or liability under the
Indebtedness.

Survival of Representations and Warranties. All representations, warranties, and
agreements made by Grantor in this Agreement shall survive the execution and
delivery of this Agreement, shall be continuing in nature, and shall remain in
full force and effect until such time as Grantor's Indebtedness shall be paid in
full.

Time is of the Essence. Time is of the essence in the performance of this
Agreement.

Waive Jury. All parties to this Agreement hereby waive the right to any Jury
trial in any action, proceeding, or counterclaim brought by any party against
any other party.

DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code:
 
Account. The word "Account" means the deposit account described in the
"Collateral Description" section.

Agreement. The word "Agreement" means this Assignment of Deposit Account, as
this Assignment of Deposit Account may be amended or modified from time to time,
together with all exhibits and schedules attached to this Assignment of Deposit
Account from time to time.
 
Borrower. The word "Borrower" means AeroGrow International. Inc. and includes
all co-signers and co-makers signing the Note and all their successors and
assigns.

Collateral. The word "Collateral" means all of Grantor's right, title and
interest in and to all the Collateral as described in the Collateral Description
section of this Agreement.

Default. The word "Default" means the Default set forth in this Agreement in the
section titled "Default", Event of Default. The words "Event of Default" mean
any of the events of default set forth in this Agreement in the default section
of this Agreement.

Grantor. The word "Grantor" means AeroGrow International, Inc.

Guaranty. The word "Guaranty" means the guaranty from guarantor, endorser,
surety, or accommodation party to Lender, including without limitation a
guaranty of all or part of the Note.

 
 

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Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the
Note or Related Documents, including all principal and interest together with
all other indebtedness and costs and expenses for which Grantor is responsible
under this Agreement or under any of the Related Documents. Specifically,
without limitation, Indebtedness includes all amounts that may be indirectly
secured by the Cross-Coliateralization provision of this Agreement.
 
Lender. The word "Lender" means FIRST WESTERN TRUST BANK, its successors and
assigns.

Note. The word "Note" means the Note executed by AeroGrow International, Inc. in
the principal amount of $2,000,000.00 dated May 21, 2010, together with all
renewals of, extensions of, modifications of, refinancing of, consolidations of,
and substitutions for the note or credit agreement.

Property. The word "Property" means all of Grantor's right, title and interest
in and to all the Property as described in the "Collateral Description" section
of this Agreement.

Related Documents. The words "Related Documents" mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS ASSIGNMENT OF DEPOSIT
ACCOUNT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MAY 21, 2010.
 
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DISBURSEMENT REQUEST AND AUTHOZATION
 
Principal
$2,000,000.00
Loan Date
05-21-2010
Maturity
05-20-2011
Loan No
43011861
Call / Coll
Account
Officer
   520
Initials
References in the boxes above are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing .."***"  has been omitted due to text length
limitations.

 

Borrower:       AeroGrow International, Inc.           Lender:      FIRST
WESTERN TRUST BANK   6075 Longbow Drive, Ste 200      Boulder Branch   Boulder,
CO 80301        1155 Canyon Blvd.       Boulder, CO 80302       (303) 441-9400

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LOAN TYPE. This is a Fixed Rate (2.000%) Non-disclosable Revolving Line of
Credit Loan to a Corporation for $2,000,000.00 due on May 20,
2011.

PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:

¨  
Personal, Family, or Household Purposes or Personal Investment.

x  
Business (Including Real Estate Investment).

SPECIFIC PURPOSE. The specific purpose of this loan is: 014 Business Working
Capital.

DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $2,000,000.00 as follows:

                                          Other
Disbursements:                                                                  $2,000,000.00
 
                                                       $2,000,000.00 As
requested by borrower upon approval from
                                             Lender                                                                                         ________________

          Note
Principal:                                                                              
$2,000,000.00

CHARGES PAID IN CASH.    Borrower has paid or will pay in cash as agreed the
following charges:
 
 
                                            Prepaid Finance Charges Paid In
Cash:                                                     $2,500.00
                                                 $2,500.00 Loan Origination Fee
($) - To be
                                                 Debited from Acct. #
2069030                                                       ___________________
 
 
                                             Total Charges Paid in
Cash:               $2,500.00

FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION. BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION 15
DATED MAY 21, 2010.

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