Exhibit 10.1
 
 
 
 
 
SECURITIES PURCHASE AGREEMENT
 
by and between
 
AEROGROW INTERNATIONAL, INC.
 
and
 
SMG GROWING MEDIA, INC.
 
dated as of
 
April 22, 2013
 
 
 
 
 
 

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TABLE OF CONTENTS
 
ARTICLE 1.   PURCHASE AND SALE OF SECURITIES
1
Section 1.1.
Sale and Issuance of Securities
1
Section 1.2.
Closing; Delivery
2
Section 1.3.
Use of Proceeds
2
Section 1.4.
Defined Terms Used in this Agreement
2
     
ARTICLE 2.   REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
4
Section 2.1.
Organization, Good Standing, Corporate Power and Qualification
5
Section 2.2.
Capitalization
5
Section 2.3.
Subsidiaries
6
Section 2.4.
Authorization
7
Section 2.5.
Valid Issuance of Securities
7
Section 2.6.
Governmental Consents and Filings
7
Section 2.7.
Litigation
8
Section 2.8.
Intellectual Property
8
Section 2.9.
Compliance with Other Instruments
9
Section 2.10.
Agreements; Actions
9
Section 2.11.
Certain Transactions
10
Section 2.12.
Rights of Registration and Voting Rights
10
Section 2.13.
Property
10
Section 2.14.
Financial Statements
11
Section 2.15.
Changes
11
Section 2.16.
Employee Matters
12
Section 2.17.
Tax Returns and Payments
14
Section 2.18.
Insurance
14
Section 2.19.
Employee Agreements
14
Section 2.20.
Permits
14
Section 2.21.
Corporate Documents
14
Section 2.22.
Environmental and Safety Laws
15
Section 2.23.
Disclosure
15
Section 2.24.
Foreign Corrupt Practices Act
15
Section 2.25.
Data Privacy
16
     
ARTICLE 3.   REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
16
Section 3.1.
Authorization
16
Section 3.2.
Purchase Entirely for Own Account
16
Section 3.3.
Disclosure of Information
17
Section 3.4.
Restricted Securities
17
Section 3.5.
Legends
17
Section 3.6.
Accredited Investor
17
Section 3.7.
No General Solicitation
17
Section 3.8.
Residence
18

 
 
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ARTICLE 4.   CONDITIONS TO THE PURCHASER’S OBLIGATIONS AT CLOSING.
18
Section 4.1.
Representations and Warranties
18
Section 4.2.
Performance
18
Section 4.3.
Compliance Certificate
18
Section 4.4.
Qualifications
18
Section 4.5.
Opinion of Company Counsel
18
Section 4.6.
Board of Directors
18
Section 4.7.
Indemnification Agreement
18
Section 4.8.
Investor’s Rights Agreement
18
Section 4.9.
Voting Agreement
19
Section 4.10.
Certificate of Designations
19
Section 4.11.
Warrant
19
Section 4.12.
Intellectual Property Purchase Agreement
19
Section 4.13.
Technology License Agreement
19
Section 4.14.
Brand License Agreement
19
Section 4.15.
Collaboration Agreement
19
Section 4.16.
Supply Chain Services Agreement
19
Section 4.17.
Bylaw Amendment
19
Section 4.18.
Material Adverse Change
19
Section 4.19.
Secretary’s Certificate
19
Section 4.20.
Proceedings and Documents
19
Section 4.21.
Preemptive Rights
19
     
ARTICLE 5.   CONDITIONS OF THE COMPANY’S OBLIGATIONS AT CLOSING.
20
Section 5.1.
Representations and Warranties
20
Section 5.2.
Performance
20
Section 5.3.
Qualifications
20
Section 5.4.
Investor’s Rights Agreement
20
Section 5.5.
Voting Agreement
20
Section 5.6.
Warrant
20
Section 5.7.
Intellectual Property Purchase Agreement
20
Section 5.8.
Technology License Agreement
20
Section 5.9.
Brand License Agreement
20
Section 5.10.
Collaboration Agreement
20
Section 5.11.
Supply Chain Services Agreement
20
     
ARTICLE 6.   CONDUCT OF BUSINESS PENDING THE CLOSING.
21
Section 6.1.
Conduct of Business by the Company Pending the Closing
21
Section 6.2.
Litigation
22
Section 6.3.
Notification of Certain Matters
22
     
ARTICLE 7.   SATISFACTION OF CLOSING CONDITIONS; TERMINATION.
23
Section 7.1.
Satisfaction of Closing Conditions
23
Section 7.2.
Termination Events
23
     
ARTICLE 8.   INDEMNIFICATION.
24
Section 8.1.
Company Indemnification
24

 
 
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Section 8.2.
Purchaser Indemnification
24
Section 8.3.
Indemnification Threshold
25
Section 8.4.
Indemnification Procedure
25
     
ARTICLE 9.   MISCELLANEOUS.
26
Section 9.1.
Survival of Warranties
26
Section 9.2.
Successors and Assigns
26
Section 9.3.
Governing Law
26
Section 9.4.
Counterparts
26
Section 9.5.
Titles and Subtitles
26
Section 9.6.
Notices
27
Section 9.7.
No Finder’s Fees
27
Section 9.8.
Amendments and Waivers
27
Section 9.9.
Severability
27
Section 9.10.
Delays or Omissions
27
Section 9.11.
Entire Agreement
28
Section 9.12.
Dispute Resolution
28
Section 9.13.
No Commitment for Additional Financing
28
           
Exhibit A
INTELLECTUAL PROPERTY PURCHASE AGREEMENT
       
Exhibit B
FORM OF CERTIFICATE OF DESIGNATIONS
       
Exhibit C
FORM OF WARRANT
       
Exhibit D
FORM OF BRAND LICENSE AGREEMENT
       
Exhibit E
FORM OF COLLABORATION AGREEMENT
       
Exhibit F
FORM OF INDEMNIFICATION AGREEMENT
       
Exhibit G
FORM OF INVESTOR’S RIGHTS AGREEMENT
       
Exhibit H
FORM OF TECHNOLOGY LICENSE AGREEMENT
       
Exhibit I
FORM OF SUPPLY CHAIN SERVICES AGREEMENT
       
Exhibit J
FORM OF VOTING AGREEMENT
       
Exhibit K
DISCLOSURE SCHEDULE
       
Exhibit L
FORM OF LEGAL OPINION OF COMPANY COUNSEL
       
Exhibit M
FAIR VALUE TRANSFER CALCULATION
       
Exhibit N
BYLAW AMENDMENT
 

 
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SECURITIES PURCHASE AGREEMENT
 
THIS SECURITIES PURCHASE AGREEMENT is made as of the 22nd day of April, 2013
(this “Agreement”) by and among AeroGrow International, Inc., a Nevada
corporation (the “Company”), and SMG Growing Media, Inc., an Ohio corporation
(the “Purchaser”).
 
RECITALS:
 
A.           The Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D as promulgated by the United States Securities and
Exchange Commission (the “Commission”) under the Securities Act of 1933, as
amended.
 
B.           Contemporaneously with the execution and delivery of this
Agreement, the Company and OMS Investments, Inc., a Delaware corporation that is
an Affiliate of the Purchaser (“OMS”), are executing and delivering an
Intellectual Property Purchase Agreement, dated as of the date hereof, in the
form attached hereto as Exhibit A (the “Intellectual Property Purchase
Agreement”).  The Company, the Purchaser and Affiliates of the Purchaser are
executing and delivering a number of other Transaction Agreements in connection
with the closing of the transactions contemplated by this Agreement.
 
AGREEMENT:
 
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchaser hereby
agree as follows:
 
ARTICLE 1.

 
PURCHASE AND SALE OF SECURITIES
 
Section 1.1. Sale and Issuance of Securities.
 
(a) The Company shall adopt and file with the Secretary of State of the State of
Nevada on or before the Closing (as defined below) the Certificate of
Designations of Series B Convertible Preferred Stock in the form of Exhibit B
attached to this Agreement (the “Certificate of Designations”).
 
(b) Subject to the terms and conditions of this Agreement, the Purchaser agrees
to purchase at the Closing and the Company agrees to sell and issue to the
Purchaser at the Closing for an aggregate purchase price of $4,000,000: (i)
2,666,667 shares of Series B Convertible Preferred Stock, par value $0.001 per
share (the “Series B Preferred Stock”), and (ii) a warrant to purchase shares of
the Company’s common stock, par value $0.001 per share (“Common Stock”), in the
form of Exhibit C attached to this Agreement (the “Warrant”).  The shares of
Series B Preferred Stock issued to the Purchaser pursuant to this Agreement
shall be referred to in this Agreement as the “Preferred Shares.”  The Preferred
Shares together with the Warrant shall be referred to in this Agreement as the
“Securities.”  The shares of Common Stock into which the Preferred Shares are
convertible shall be referred to in this Agreement as the “Conversion
Shares.”  The shares of Common Stock that may be acquired upon exercise of the
Warrant shall be referred to in this Agreement as the “Warrant Shares.”
 
 
 

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Section 1.2. Closing; Delivery.
 
(a) The purchase and sale of the Securities shall take place remotely via the
exchange of documents and signatures, at 11:00 a.m. ET, on April 24, 2013, or at
such other time and place as the Company and the Purchaser mutually agree upon,
orally or in writing (which time and place are designated as the “Closing”).
 
(b) At the Closing, the Company shall deliver to the Purchaser, a certificate
representing the Preferred Shares and the duly executed Warrant being purchased
by the Purchaser at such Closing against payment of the purchase price therefor
by wire transfer to a bank account designated by the Company.
 
Section 1.3. Use of Proceeds.  In accordance with the directions of the
Company’s Board of Directors, as it shall be constituted in accordance with the
Voting Agreement, the Company will use the proceeds from the sale of the
Securities hereunder and the sale of the hydroponic intellectual property under
the Intellectual Property Purchase Agreement to pay-off at the Closing the
Revised Main Power Note, at such discount as may be negotiated by the Company.
Net proceeds remaining after such payment will be used for working capital and
general corporate purposes.
 
Section 1.4. Defined Terms Used in this Agreement.  In addition to the terms
defined above, the following terms used in this Agreement shall be construed to
have the meanings set forth or referenced below.
 
(a) “Affiliate” means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under common control with, such other
Person.  For purposes of this definition, “control” (including, with correlative
meanings, the terms “controlled by” and “under common control with”) when used
with respect to any Person, means the possession, directly or indirectly, of the
power to cause the direction of management or policies of such person, whether
through the ownership of voting securities, by contract or otherwise.
 
(b) “Articles of Incorporation” means the Articles of Incorporation of the
Company, as amended from time to time.
 
(c) “Brand License Agreement” means the brand license agreement between the
Company and the Purchaser dated as of the Closing in the form of Exhibit D
attached to this Agreement.
 
(d) “Bylaw Amendment” means amendment no. 2 to the amended and restated bylaws
of the Company in the form of Exhibit N attached to this Agreement.
 
(e) “Code” means the Internal Revenue Code of 1986, as amended.
 
(f) “Collaboration Agreement” means the collaboration agreement among the
Company, OMS and The Scotts Company, LLC, an Ohio limited liability company that
is an Affiliate of the Purchaser (“Scotts”),  dated as of the Closing in the
form of Exhibit E attached to this Agreement.
 
 
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(g) “Company Intellectual Property” means all patents, patent applications,
trademarks, trademark applications, service marks, service mark applications,
tradenames, copyrights, trade secrets, domain names, mask works, information and
proprietary rights and processes, similar or other intellectual property rights,
subject matter of any of the foregoing, tangible embodiments of any of the
foregoing, licenses in to and under any of the foregoing, and any and all such
cases that are owned or used by the Company in the conduct of the Company’s
business as now conducted and as presently proposed to be conducted.
 
(h) “Fair Value Transfer” means the pre-tax “fair value” of equity awards
granted during a fiscal year.  Fair Value Transfer is calculated as follows, for
any particular fiscal year of the Company: (i) options are valued using the
weighted-average fair value of options granted during the year using the
Black-Scholes option pricing model; (ii) restricted shares are valued at Market
Price (as defined in the Warrant) on grant date; and (iii) performance shares
are valued at Market Price on grant date using target number of shares;
cash-based LTI awards are valued at grant-date target value.  Exhibit M attached
to this Agreement is an example of the agreed Fair Value Transfer calculation
for the described options on the assumptions set forth in Exhibit M.
 
(i) “Indemnification Agreement” means the agreement between the Company and the
director designated by the Purchaser pursuant to the Voting Agreement, dated as
of the date of the Closing, in the form of Exhibit F attached to this Agreement.
 
(j) “Investor’s Rights Agreement” means the agreement among the Company and the
Purchaser dated as of the date of the Closing, in the form of Exhibit G attached
to this Agreement.
 
(k) “Key Employee” means any executive-level employee (including division
director and vice president-level positions) as well as any employee or
consultant who either alone or in concert with others develops, invents,
programs or designs any Company Intellectual Property, and includes at least J.
Michael Wolfe, H. MacGregor Clarke, John K. Thompson and Grey Gibbs.
 
(l) “Knowledge,” including the phrase “to the Company’s knowledge,” shall mean
the actual knowledge after reasonable investigation of J. Michael Wolfe, H.
MacGregor Clarke, John K. Thompson and Grey Gibbs.
 
(m) “Technology License Agreement” means the technology license agreement
between the Company and the Purchaser dated as of the Closing in the form of
Exhibit H attached to this Agreement.
 
(n) “Material Adverse Effect” means a material adverse effect on the business,
assets (including intangible assets), liabilities, financial condition,
property, prospects or results of operations of the Company.
 
 
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(o) “Ordinary Course of Business” means, with respect to any Person, any action
taken by such Person if: (i) such action is consistent with past practice
including as to amount and frequency and is taken in the course of normal
day-to-day operations, (ii) such action complies with law, and (iii) such action
is not required to be authorized by the board of directors or other governing
body of such Person.
 
(p) “Person” means any individual, corporation, partnership, trust, limited
liability company, association or other entity.
 
(q) “Preferred Stock” means the Company’s preferred stock, par value $0.001 per
share, which is issuable from time to time in one or more series.
 
(r) “Revised Main Power Note” means the Promissory Note dated December 31, 2010,
and amended December 31, 2011, issued by the Company to Main Power Electrical
Factory, Ltd. (“Main Power”) due December 15, 2015.
 
(s) “Securities Act” means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
 
(t) “Supply Chain Services Agreement” means the supply chain services agreement
among the Company, OMS and Scotts dated as of the Closing in the form of Exhibit
I attached to this Agreement.
 
(u) “Tax or Taxes” means any federal, state, local or foreign taxes,
assessments, interest, penalties, deficiencies, fees and other governmental
charges or impositions (including all income tax, unemployment compensation,
social security, payroll, sales and use, excise, privilege, property, ad
valorem, franchise, license, escheat, unclaimed funds, school, and any other tax
or similar governmental charge or imposition).
 
(v) “Transaction Agreements” means this Agreement, the Certificate of
Designations, the Bylaw Amendment, the Warrant, the Investor’s Rights Agreement,
the Collaboration Agreement, the Supply Chain Services Agreement, the Brand
License Agreement, the Intellectual Property Purchase Agreement, the Technology
License Agreement, the Indemnification Agreement and the Voting Agreement.
 
(w) “U.S. GAAP” means United States generally accepted accounting principles and
practices applied consistently throughout the periods involved.
 
(x) “Voting Agreement” means the agreement among the Company, the Purchaser and
certain other stockholders of the Company, dated as of the date of the Closing,
in the form of Exhibit J attached to this Agreement.
 
ARTICLE 2.

 
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
 
The Company hereby represents and warrants to the Purchaser that, except as set
forth on the Disclosure Schedule attached as Exhibit K to this Agreement, which
exceptions shall be deemed to be part of the representations and warranties made
hereunder, the following representations are true and complete as of the date of
the Closing, except as otherwise indicated.  The Disclosure Schedule shall be
arranged in sections corresponding to the numbered and lettered sections
contained in this ARTICLE 2, and the disclosures in any section of the
Disclosure Schedule shall qualify other sections in this ARTICLE 2 only to the
extent it is readily apparent from a reading of the disclosure that such
disclosure is applicable to such other sections.
 
 
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Section 2.1. Organization, Good Standing, Corporate Power and
Qualification.  The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada and has all requisite
corporate power and authority to carry on its business as presently conducted
and as proposed to be conducted.  The Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to so
qualify would have a Material Adverse Effect.
 
Section 2.2. Capitalization.
 
(a) The authorized capital of the Company consists, immediately prior to the
Closing, of:
 
(i) 750,000,000 shares of Common Stock, 5,904,877 shares of which are issued and
outstanding immediately prior to the Closing.  All of the outstanding shares of
Common Stock have been duly authorized, are fully paid and nonassessable and
were issued in compliance with all applicable federal and state securities
laws.  The Company holds no Common Stock in its treasury.
 
(ii) 20,000,000 shares of Preferred Stock, of which 18,000 shares have been
designated Series A Preferred Stock and 2,666,667 shares have been designated
Series B Preferred Stock, none of which are issued and outstanding immediately
prior to the Closing.  The rights, privileges and preferences of the Preferred
Stock are as stated in the Articles of Incorporation and as provided by the
Nevada Revised Statutes.  The Company holds no Preferred Stock in its treasury.
 
(b) The Company has reserved 26,211,756 shares of Common Stock for issuance to
holders of granted and outstanding warrants to purchase shares of Common Stock,
including 25,683,486 for the Warrant.
 
(c) The Company has reserved 13,505,000 shares of Common Stock for issuance to
officers, directors, employees and consultants of the Company pursuant to its
2005 Equity Compensation Plan duly adopted by the Board of Directors and
approved by the Company stockholders (the “Stock Plan”).  Of such reserved
shares of Common Stock, 181,931 shares have been issued pursuant to restricted
stock award agreements, options to purchase 554,901 shares have been granted and
are currently outstanding, and 12,768,158 shares of Common Stock remain
available for issuance to officers, directors, employees and consultants
pursuant to the Stock Plan.  The Company has furnished to the Purchaser complete
and accurate copies of the Stock Plan and forms of agreements used
thereunder.  The Company has adopted and currently maintains no equity
compensation plan or arrangement other than the Stock Plan.  The annual Fair
Value Transfer of equity compensation granted by the Company during its fiscal
years ended March 31, 2013, 2012 and 2011 is as follows $521,125, $0, and
$122,483, respectively.
 
 
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(d) Section 2.2(d) of the Disclosure Schedule sets forth the capitalization of
the Company immediately following the Closing including the number of shares of
the following: (i) issued and outstanding Common Stock, including, with respect
to restricted Common Stock, vesting schedule and repurchase price; (ii) granted
stock options exercise price; (iii) shares of Common Stock reserved for future
award grants under the Stock Plan; (iv) each series of Preferred Stock; and
(v) warrants or stock purchase rights, if any.  Except for (A) the conversion
privileges of the Preferred Shares to be issued under this Agreement, (B) the
rights provided in Section 4 of the Investor’s Rights Agreement, and (C) the
securities and rights described in Sections 2.2(b) and (c) of this Agreement and
Section 2.2(d) of the Disclosure Schedule, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal or similar rights) or agreements, orally or in writing, to purchase or
acquire from the Company any shares of Common Stock or Preferred Stock, or any
securities convertible into or exchangeable for shares of Common Stock or
Preferred Stock.
 
(e) None of the Company’s stock purchase agreements or stock option documents
contains a provision for acceleration of vesting (or lapse of a repurchase
right) or other changes in the vesting provisions or other terms of such
agreement or understanding upon the occurrence of any event or combination of
events, including without limitation in the case where the Company’s Stock Plan
is not assumed in an acquisition.  The Company has never adjusted or amended the
exercise price of any stock options previously awarded, whether through
amendment, cancellation, replacement grant, repricing, or any other means.  The
Company has no obligation (contingent or otherwise) to purchase or redeem any of
its capital stock.
 
(f) 409A. The Company believes in good faith that  any “nonqualified deferred
compensation plan” (as such term is defined under Section 409A(d)(1) of the Code
and the guidance thereunder) under which the Company  makes, is obligated to
make or promises to make, payments (each, a “409A Plan”) complies in all
material respects, in both form and operation, with the requirements of Section
409A of the Code and the guidance thereunder. To the knowledge of  the Company,
no payment to be made under any 409A Plan is, or will be, subject to the
penalties of Section 409A(a)(1) of the Code.
 
(g) The Company has obtained valid waivers of any rights by other parties to
purchase any of the Securities covered by this Agreement.
 
Section 2.3. Subsidiaries.  The Company does not currently own or control,
directly or indirectly, any interest in any other corporation, partnership,
trust, joint venture, limited liability company, association, or other business
entity.  The Company is not a participant in any joint venture, partnership or
similar arrangement.
 
 
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Section 2.4. Authorization.  All corporate action required to be taken by the
Company’s Board of Directors and stockholders in order to authorize the Company
to enter into the Transaction Agreements, and to issue the Securities at the
Closing and the Common Stock issuable upon conversion of the Preferred Shares,
has been taken or will be taken prior to the Closing.  All action on the part of
the officers of the Company necessary for the execution and delivery of the
Transaction Agreements, the performance of all obligations of the Company under
the Transaction Agreements to be performed as of the Closing, and the issuance
and delivery of the Securities has been taken or will be taken prior to the
Closing.  The Transaction Agreements, when executed and delivered by the
Company, shall constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their respective terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, or other laws of general application relating to or
affecting the enforcement of creditors’ rights generally, (ii) as limited by
laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies, or (iii) to the extent the indemnification provisions
contained in the Investor’s Rights Agreement and the Indemnification Agreement
may be limited by applicable federal or state securities laws.
 
Section 2.5. Valid Issuance of Securities.  The Securities, when issued, sold
and delivered in accordance with the terms and for the consideration set forth
in this Agreement, will be validly issued, fully paid and nonassessable and free
of restrictions on transfer other than restrictions on transfer under the
Transaction Agreements, applicable state and federal securities laws and liens
or encumbrances created by or imposed by the Purchaser.  Assuming the accuracy
of the representations of the Purchaser in Section ARTICLE 3 of this Agreement
and subject to the filings described in Section 2.6(ii) below, the Securities
will be issued in compliance with all applicable federal and state securities
laws.  The Common Stock issuable upon conversion of the Preferred Shares has
been duly reserved for issuance, and upon issuance in accordance with the terms
of the Certificate of Designations, will be validly issued, fully paid and
nonassessable and free of restrictions on transfer other than restrictions on
transfer under the Transaction Agreements, applicable federal and state
securities laws and liens or encumbrances created by or imposed by the
Purchaser.  Based in part upon the representations of the Purchaser in Section
ARTICLE 3 of this Agreement, and subject to Section 2.6 below, the Common Stock
issuable upon conversion of the Preferred Shares will be issued in compliance
with all applicable federal and state securities laws. The Common Stock issuable
upon exercise of the Warrant has been duly reserved for issuance, and upon
issuance in accordance with the terms of the Warrant, will be validly issued,
fully paid and nonassessable and free of restrictions on transfer other than
restrictions on transfer under the Transaction Agreements, applicable federal
and state securities laws and liens or encumbrances created by or imposed by the
Purchaser.  Based in part upon the representations of the Purchaser in Section
ARTICLE 3 of this Agreement, and subject to Section 2.6 below, the Common Stock
issuable upon exercise of the Warrant will be issued in compliance with all
applicable federal and state securities laws.
 
Section 2.6. Governmental Consents and Filings.  Assuming the accuracy of the
representations made by the Purchaser in Section ARTICLE 3 of this Agreement, no
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority is required on the part of the Company in connection with
the consummation of the transactions contemplated by this Agreement, except for
(i) the filing of the Certificate of Designations, which will have been filed as
of the Closing, and (ii) filings pursuant to Regulation D of the Securities Act,
and applicable state securities laws, which have been made or will be made in a
timely manner.
 
 
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Section 2.7. Litigation.  There is no claim, action, suit, proceeding,
arbitration, complaint, charge or investigation pending or to the Company’s
knowledge, currently threatened (i) against the Company or any officer, director
or Key Employee of the Company arising out of their employment or board
relationship with the Company; (ii) that questions the validity of the
Transaction Agreements or the right of the Company to enter into them, or to
consummate the transactions contemplated by the Transaction Agreements; or (iii)
to the Company’s knowledge, that would reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.  Neither the
Company nor, to the Company’s knowledge, any of its officers, directors or Key
Employees is a party or is named as subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality (in the case of officers, directors or Key Employees, such as
would affect the Company).  There is no action, suit, proceeding or
investigation by the Company pending or which the Company intends to
initiate.  The foregoing includes, without limitation, actions, suits,
proceedings or investigations pending or threatened in writing (or any basis
therefor known to the Company) involving the prior employment of any of the
Company’s employees, their services provided in connection with the Company’s
business, or any information or techniques allegedly proprietary to any of their
former employers, or their obligations under any agreements with prior
employers.
 
Section 2.8. Intellectual Property.  The Company owns or possesses or  can
acquire on commercially reasonable terms sufficient legal rights to all Company
Intellectual Property without any known conflict with, or infringement of, the
rights of others.  To the Company’s knowledge, no product or service marketed or
sold (or proposed to be marketed or sold) by the Company violates or will
violate any license or infringes or will infringe any intellectual property
rights of any other party.  Other than with respect to commercially available
software products under standard end-user object code license agreements, there
are no outstanding options, licenses, agreements, claims, encumbrances or shared
ownership interests of any kind relating to the Company Intellectual Property,
nor is the Company bound by or a party to any options, licenses or agreements of
any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other Person.  The Company has not received any communications
alleging that the Company has violated or, by conducting its business, would
violate any of the patents, trademarks, service marks, tradenames, copyrights,
trade secrets, mask works or other proprietary rights or processes of any other
Person.  To the Company’s knowledge, the Company has obtained and possesses
valid licenses to use all of the software programs present on the computers and
other software-enabled electronic devices that it owns or leases or that it has
otherwise provided to its employees for their use in connection with the
Company’s business.  To the Company’s knowledge, it will not be necessary to use
any inventions of any of its employees or consultants (or Persons it currently
intends to hire) made prior to their employment by the Company.  Each employee
and consultant has assigned to the Company all intellectual property rights he
or she owns that are related to the Company’s business as now conducted and as
presently proposed to be conducted.  Section 2.8 of the Disclosure Schedule
lists all Company Intellectual Property.  The Company has not embedded any open
source, copyleft or community source code in any of its products generally
available or in development, including but not limited to any libraries or code
licensed under any General Public License, Lesser General Public License or
similar license arrangement.  For purposes of this Section 2.8, the Company
shall be deemed to have knowledge of a patent right if the Company has actual
knowledge of the patent right or would be found to be on notice of such patent
right as determined by reference to United States patent laws.
 
 
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Section 2.9. Compliance with Other Instruments.  The Company is not in violation
or default (i) of any provisions of its Articles of Incorporation or Bylaws,
(ii) of any judgment, order, writ or decree, (iii) under any note, instrument,
indenture or mortgage, (iv) under any lease, agreement, contract or purchase
order to which it is a party or by which it is bound that is required to be
listed on the Disclosure Schedule, or (v) of any provision of federal or state
statute, rule or regulation applicable to the Company, in the case of (iii),
(iv) or (v), the violation of which, singularly or in the aggregate, would have
a Material Adverse Effect.  The execution, delivery and performance of the
Transaction Agreements and the consummation of the transactions contemplated by
the Transaction Agreements will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either (i) a default under any such provision, instrument, judgment,
order, writ, decree, contract or agreement or (ii) an event which results in the
creation of any lien, charge or encumbrance upon any assets of the Company or
the suspension, revocation, forfeiture, or nonrenewal of any material permit or
license applicable to the Company.
 
Section 2.10. Agreements; Actions.
 
(a) Except for the Transaction Agreements and contracts and commitments made in
the Ordinary Course of Business of the Company, there are no agreements,
understandings, instruments, contracts or proposed transactions to which the
Company is a party or by which it is bound that involve (i) obligations
(contingent or otherwise) of, or payments to, the Company in excess of $10,000,
(ii) the license of any patent, copyright, trademark, trade secret or other
proprietary right to or from the Company, (iii) the grant of rights to
manufacture, produce, assemble, license, market, or sell its products to any
other Person that limit the Company’s exclusive right to develop, manufacture,
assemble, distribute, market or sell its products, or (iv) indemnification by
the Company with respect to infringements of proprietary rights.
 
(b) Since December 31, 2012, the Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) other than in the Ordinary Course of
Business of the Company, incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $10,000 or in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any Person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the Ordinary Course of Business. For the purposes of Sections 2.10(b) and (c),
all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same Person (including Persons
the Company has reason to believe are affiliated with each other) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such section.
 
(c) The Company is not a guarantor or indemnitor of any indebtedness of any
other Person.
 
 
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(d) The Company has not engaged in the past three (3) months in any discussion
with any representative of any Person regarding (i) a sale or exclusive license
of all or substantially all of the Company’s assets, or (ii) any merger,
consolidation or other business combination transaction of the Company with or
into another Person.
 
Section 2.11. Certain Transactions.
 
(a) Other than (i) standard employee benefits generally made available to all
employees, (ii) standard director and officer indemnification agreements
approved by the Board of Directors, and (iii) the purchase of shares of the
Company’s capital stock and the issuance of options to purchase shares of the
Company’s Common Stock, in each instance, approved in the written minutes of the
Board of Directors, there are no agreements, understandings or proposed
transactions between the Company and any of its current officers, directors,
consultants or Key Employees, or, to the Knowledge of the Company, any Affiliate
thereof or any former officers, directors, consultants or Key Employees or
Affiliates thereof.
 
(b) The Company is not indebted, directly or indirectly, to any of its
directors, officers or employees or to their respective spouses or children or
to any Affiliate of any of the foregoing, other than in connection with expenses
or advances of expenses incurred in the Ordinary Course of Business or employee
relocation expenses and for other customary employee benefits made generally
available to all employees.  None of the Company’s directors, officers or
employees, or any members of their immediate families, or any Affiliate of the
foregoing are, directly or indirectly, indebted to the Company or,  to the
Company’s knowledge, have any (i) material commercial, industrial, banking,
consulting, legal, accounting, charitable or familial relationship with any of
the Company’s customers, suppliers, service providers, joint venture partners,
licensees and competitors, (ii) direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation which competes
with the Company except that directors, officers or employees or stockholders of
the Company may own stock in (but not exceeding two percent (2%) of the
outstanding capital stock of) publicly traded companies that may compete with
the Company or (iii) financial interest in any contract with the Company.
 
Section 2.12. Rights of Registration and Voting Rights.  Except as provided in
the Investor’s Rights Agreement, the Company is not under any obligation to
register under the Securities Act any of its currently outstanding securities or
any securities issuable upon exercise or conversion of its currently outstanding
securities.  To the Company’s knowledge, except as contemplated in the Voting
Agreement, no stockholder of the Company has entered into any agreements with
respect to the voting of capital shares of the Company.
 
Section 2.13. Property.  The property and assets that the Company owns are free
and clear of all mortgages, deeds of trust, liens, loans and encumbrances,
except for statutory liens for the payment of current Taxes that are not yet
delinquent and encumbrances and liens that arise in the Ordinary Course of
Business and do not materially impair the Company’s ownership or use of such
property or assets.  With respect to the property and assets it leases, the
Company is in compliance with such leases and, to its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances other than those of
the lessors of such property or assets.  The Company does not own any real
property.
 
 
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Section 2.14. Financial Statements.  The Company has delivered to the Purchaser
its audited financial statements as of March 31, 2012 and for the fiscal year
ended March 31, 2012 and its unaudited financial statements (including balance
sheet, income statement and statement of cash flows) as of December 31, 2012 and
for the nine-month period ended December 31, 2012 (collectively, the “Financial
Statements”).  The Financial Statements have been prepared in accordance with
U.S. GAAP, except that the unaudited Financial Statements may not contain all
footnotes required by U.S. GAAP.  The Financial Statements fairly present in all
material respects the financial condition and operating results of the Company
as of the dates, and for the periods, indicated therein. Except as set forth in
the Financial Statements, the Company has no material liabilities or
obligations, contingent or otherwise, other than (i) liabilities incurred in the
Ordinary Course of Business subsequent to December 31, 2012 (ii) obligations
under contracts and commitments incurred in the Ordinary Course of Business and
(iii) liabilities and obligations of a type or nature not required under U.S.
GAAP to be reflected in the Financial Statements, which, in all such cases,
individually and in the aggregate would not have a Material Adverse Effect.  The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with U.S. GAAP.
 
Section 2.15. Changes.  Since December 31, 2012 there has not been:
 
(a) any change in the assets, liabilities, financial condition or operating
results of the Company from that reflected in the Financial Statements, except
changes in the Ordinary Course of Business that have not caused, in the
aggregate, a Material Adverse Effect;
 
(b) any damage, destruction or loss, whether or not covered by insurance, that
would have a Material Adverse Effect;
 
(c) any waiver or compromise by the Company of a valuable right or of a material
debt owed to it;
 
(d) any satisfaction or discharge of any lien, claim, or encumbrance or payment
of any obligation by the Company, except in the Ordinary Course of Business and
the satisfaction or discharge of which would not have a Material Adverse Effect;
 
(e) any material change to a material contract or agreement by which the Company
or any of its assets is bound or subject;
 
(f) any material change in any compensation arrangement or agreement with any
employee, officer, director or stockholder;
 
(g) any resignation or termination of employment of any officer or Key Employee
of the Company;
 
(h) any mortgage, pledge, transfer of a security interest in, or lien, created
by the Company, with respect to any of its material properties or assets, except
liens for Taxes not yet due or payable and liens that arise in the Ordinary
Course of Business and do not materially impair the Company’s ownership or use
of such property or assets;
 
 
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(i) any loans or guarantees made by the Company to or for the benefit of its
employees, officers or directors, or any members of their immediate families,
other than travel advances and other advances made in the ordinary course of its
business;
 
(j) any declaration, setting aside or payment or other distribution in respect
of any of the Company’s capital stock, or any direct or indirect redemption,
purchase, or other acquisition of any of such stock by the Company;
 
(k) any sale, assignment or transfer of any Company Intellectual Property that
could reasonably be expected to result in a Material Adverse Effect;
 
(l) receipt of notice that there has been a loss of, or material order
cancellation by, any major customer of the Company;
 
(m) to the Company’s knowledge, any other event or condition of any character,
other than events affecting the economy or the Company’s industry generally, 
that could reasonably be expected to result in a Material Adverse Effect; or
 
(n) any arrangement or commitment by the Company to do any of the things
described in this Section 2.15.
 
Section 2.16. Employee Matters.
 
(a) As of the date hereof, the Company employs 19 full-time employees and 2
part-time employees and engages 0 consultants or independent
contractors.  Section 2.16 of the Disclosure Schedule sets forth a detailed
description of all compensation, including salary, bonus, severance obligations
and deferred compensation paid or payable for each officer, employee, consultant
and independent contractor of the Company who received compensation in excess of
$50,000 for the fiscal year ending March 31, 2013 or is anticipated to receive
compensation in excess of $50,000 for the fiscal year ending March 31, 2014.
 
(b) To the Company’s knowledge, none of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would materially interfere with such employee’s
ability to promote the interest of the Company or that would conflict with the
Company’s business.  Neither the execution or delivery of the Transaction
Agreements, nor the carrying on of the Company’s business by the employees of
the Company, nor the conduct of the Company’s business as now conducted and as
presently proposed to be conducted, will, to the Company’s knowledge, conflict
with or result in a breach of the terms, conditions, or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
such employee is now obligated.
 
(c) The Company is not delinquent in payments to any of its employees,
consultants, or independent contractors for any wages, salaries, commissions,
bonuses, or other direct compensation for any service performed for it to the
date hereof or amounts required to be reimbursed to such employees, consultants,
or independent contractors. The Company has complied in all material respects
with all applicable state and federal equal employment opportunity laws and with
other laws related to employment, including those related to wages, hours,
worker classification, and collective bargaining.  The Company has withheld and
paid to the appropriate governmental entity or is holding for payment not yet
due to such governmental entity all amounts required to be withheld from
employees of the Company and is not liable for any arrears of wages, Taxes,
penalties, or other sums for failure to comply with any of the foregoing.
 
 
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(d) To the Company’s knowledge, no Key Employee intends to terminate employment
with the Company or is otherwise likely to become unavailable to continue as a
Key Employee, nor does the Company have a present intention to terminate the
employment of any of the foregoing.  The employment of each employee of the
Company is terminable at the will of the Company.  Except as set forth in
Section 2.16 of the Disclosure Schedule or as required by law, upon termination
of the employment of any such employees, no severance or other payments will
become due.  Except as set forth in Section 2.16 of the Disclosure Schedule, the
Company has no policy, practice, plan, or program of paying severance pay or any
form of severance compensation in connection with the termination of employment
services.
 
(e) The Company has not made any representations regarding equity incentives to
any officer, employees, director or consultant that are inconsistent with the
share amounts and terms set forth in the minutes of meetings of the Company’s
board of directors.
 
(f) Each former Key Employee whose employment was terminated by the Company has
entered into an agreement with the Company providing for the full release of any
claims against the Company or any related party arising out of such employment.
 
(g) Section 2.16 of the Disclosure Schedule sets forth each employee benefit
plan maintained, established or sponsored by the Company, or which the Company
participates in or contributes to, which is subject to the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”).  The Company has made all
required contributions and has no liability to any such employee benefit plan,
other than liability for health plan continuation coverage described in Part 6
of Title I(B) of ERISA,  and has complied in all material respects with all
applicable laws for any such employee benefit plan.
 
(h) The Company is not bound by or subject to (and none of its assets or
properties is bound by or subject to) any written or oral, express or implied,
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to the knowledge of the Company, has sought to represent any of
the employees, representatives or agents of the Company.  There is no strike or
other labor dispute involving the Company pending, or to the Company’s
knowledge, threatened, which could have a Material Adverse Effect, nor is the
Company aware of any labor organization activity involving its employees.
 
(i) To the Company’s knowledge, none of the Key Employees or directors of the
Company has been (a) subject to voluntary or involuntary petition under the
federal bankruptcy laws or any state insolvency law or the appointment of a
receiver, fiscal agent or similar officer by a court for his business or
property; (b) convicted in a criminal proceeding or named as a subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses); (c) subject to any order, judgment, or decree (not subsequently
reversed, suspended, or vacated) of any court of competent jurisdiction
permanently or temporarily enjoining him from engaging, or otherwise imposing
limits or conditions on his engagement in any securities, investment advisory,
banking, insurance, or other type of business or acting as an officer or
director of a public company; or (d) found by a court of competent jurisdiction
in a civil action or by the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated any federal or state securities,
commodities, or unfair trade practices law, which such judgment or finding has
not been subsequently reversed, suspended, or vacated.
 
 
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Section 2.17. Tax Returns and Payments.  There are no federal, state, county,
local or foreign Taxes due and payable by the Company which have not been timely
paid.  There are no accrued and unpaid federal, state, country, local or foreign
Taxes of the Company which are due, whether or not assessed or disputed.  There
have been no examinations or audits of any Tax returns or reports by any
applicable federal, state, local or foreign governmental agency.  The Company
has duly and timely filed all federal, state, county, local and foreign Tax
returns required to have been filed by it and there are in effect no waivers of
applicable statutes of limitations with respect to Taxes for any year.
 
Section 2.18. Insurance.  The Company has in full force and effect fire and
casualty insurance policies with extended coverage, sufficient in amount
(subject to reasonable deductions) to allow it to replace any of its properties
that might be damaged or destroyed.
 
Section 2.19. Employee Agreements.  Each current and, to the Knowledge of the
Company, former employee, consultant and officer of the Company has executed an
agreement with the Company regarding confidentiality and proprietary information
substantially in the form or forms delivered to the counsel for the Purchaser
(the “Confidential Information Agreements”).  No current or, to the Knowledge of
the Company, former Key Employee has excluded works or inventions from his or
her assignment of inventions pursuant to such Key Employee’s Confidential
Information Agreement.  Each current Key Employee has executed an employment
agreement that includes non-competition and non-solicitation provisions in the
forms delivered to the Purchaser.  The Company is not aware that any of its Key
Employees is in violation of any agreement covered by this Section 2.19.
 
Section 2.20. Permits.  The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business, the lack of
which could reasonably be expected to have a Material Adverse Effect.  The
Company is not in default in any material respect under any of such franchises,
permits, licenses or other similar authority.
 
Section 2.21. Corporate Documents.  The Articles of Incorporation and Bylaws of
the Company are in the form provided to the Purchaser.  The copy of the minute
books of the Company provided to the Purchaser contains minutes of all meetings
of directors and stockholders and all actions by written consent without a
meeting by the directors and stockholders since the date of incorporation and
accurately reflects in all material respects all actions by the directors (and
any committee of directors) and stockholders with respect to all transactions
referred to in such minutes.
 
 
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Section 2.22. Environmental and Safety Laws.  Except as could not reasonably be
expected to have a Material Adverse Effect (a) the Company is and has been in
compliance with all Environmental Laws (as defined below); (b) there has been no
release or threatened release of any pollutant, contaminant or toxic or
hazardous material, substance or waste, or petroleum or any fraction thereof,
(each a “Hazardous Substance”) on, upon, into or from any site currently or
heretofore owned, leased or otherwise used by the Company; (c) there have been
no Hazardous Substances generated by the Company that have been disposed of or
come to rest at any site that has been included in any published U.S. federal,
state or local “superfund” site list or any other similar list of hazardous or
toxic waste sites published by any governmental authority in the United States;
and (d) there are no underground storage tanks located on, no polychlorinated
biphenyls (“PCBs”) or PCB-containing equipment used or stored on, and no
hazardous waste as defined by the Resource Conservation and Recovery Act, as
amended, stored on, any site owned or operated by the Company, except for the
storage of hazardous waste in compliance with Environmental Laws.  The Company
has made available to the Purchaser true and complete copies of all material
environmental records, reports, notifications, certificates of need, permits,
pending permit applications, correspondence, engineering studies, and
environmental studies or assessments.  “Environmental Laws” means any law,
regulation, or other applicable requirement relating to (a) releases or
threatened release of Hazardous Substance; (b) pollution or protection of
employee health or safety, public health or the environment; or (c) the
manufacture, handling, transport, use, treatment, storage, or disposal of
Hazardous Substances.
 
Section 2.23. Disclosure.  The Company has made available to the Purchaser all
the information reasonably available to the Company that the Purchaser has
requested for deciding whether to acquire the Securities, including certain of
the Company’s projections describing its proposed business plan that were
included in the spreadsheets entitled “AeroGrow International FY 2014-16
Forecast” (the “Business Plan”).  No representation or warranty of the Company
contained in this Agreement, as qualified by the Disclosure Schedule, and no
certificate furnished or to be furnished to Purchasers at the Closing contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.  The
Business Plan was prepared in good faith; however, the Company does not warrant
that it will achieve any results projected in the Business Plan.  It is
understood that this representation is qualified by the fact that the Company
has not delivered to the Purchaser, and has not been requested to deliver, a
private placement or similar memorandum or any written disclosure of the types
of information customarily furnished to purchasers of securities.
 
Section 2.24. Foreign Corrupt Practices Act.  Neither the Company nor any of the
Company’s directors, officers, employees or agents have, directly or indirectly,
made, offered, promised or authorized any payment or gift of any money or
anything of value to or for the benefit of any “foreign official” (as such term
is defined in the U.S. Foreign Corrupt Practices Act (the “FCPA”)), foreign
political party or official thereof or candidate for foreign political office
for the purpose of (i) influencing any official act or decision of such
official, party or candidate, (ii) inducing such official, party or candidate to
use his, her or its influence to affect any act or decision of a foreign
governmental authority or (iii) securing any improper advantage, in the case of
(i), (ii) and (iii) above in order to assist the Company or any of its
Affiliates in obtaining or retaining business for or with, or directing business
to, any Person.  Neither the Company nor any of its directors, officers,
employees or agents have made or authorized any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment of funds or received or retained any
funds in violation of any law, rule or regulation.  The Company further
represents that it has maintained, and has caused each of its subsidiaries and
Affiliates to maintain, systems of internal controls (including, but not limited
to, accounting systems, purchasing systems and billing systems) to ensure
compliance with the FCPA or any other applicable anti-bribery or anti-corruption
law.
 
 
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Section 2.25. Data Privacy.  In connection with its collection, storage,
transfer (including without limitation, any transfer across national borders)
and/or use of any personally identifiable information from any individuals,
including, without limitation, any customers, prospective customers, employees
and/or other third parties (collectively, “Personal Information”), the Company
is and has been  in compliance with all applicable laws in all relevant
jurisdictions, the Company’s privacy policies, and the requirements of any
contract or codes of conduct to which the Company is a party.  The Company has
commercially reasonable physical, technical, organizational and administrative
security measures and policies in place to protect all Personal Information
collected by it or on its behalf from and against unauthorized access, use
and/or disclosure.  The Company is and has been in compliance in all material
respects with all laws relating to data loss, theft and breach of security
notification obligations.
 
ARTICLE 3.

 
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
 
The Purchaser hereby represents and warrants to the Company that:
 
Section 3.1. Authorization.  The Purchaser has full power and authority to enter
into the Transaction Agreements to which it is a party.  Each Transaction
Agreement to which the Purchaser is a party, when executed and delivered by the
Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors’ rights generally, and as limited by laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies, or
(b) to the extent the indemnification provisions contained in the Investor’s
Rights Agreement may be limited by applicable federal or state securities laws.
 
Section 3.2. Purchase Entirely for Own Account.  This Agreement is made with the
Purchaser in reliance upon the Purchaser’s representation to the Company, which
by the Purchaser’s execution of this Agreement, the Purchaser hereby confirms,
that the Securities to be acquired by the Purchaser will be acquired for
investment for the Purchaser’s own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same.  By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any Person to sell, transfer or grant
participations to such Person or to any third Person, with respect to any of the
Securities. The Purchaser has not been formed for the specific purpose of
acquiring the Securities.
 
 
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Section 3.3. Disclosure of Information.  The Purchaser has had an opportunity to
discuss the Company’s business, management, financial affairs and the terms and
conditions of the offering of the Securities with the Company’s management and
has had an opportunity to review the Company’s facilities. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section ARTICLE 2 of this Agreement or the right of the Purchaser to
rely thereon.
 
Section 3.4. Restricted Securities.  The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser’s representations as
expressed herein.  The Purchaser understands that the Securities are “restricted
securities” under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available.  The Purchaser acknowledges that the
Company has no obligation to register or qualify the Preferred Shares, the
Conversion Shares or the Warrant Shares, for resale except as set forth in the
Investor’s Rights Agreement.  The Purchaser further acknowledges that if an
exemption from registration or qualification is available, it may be conditioned
on various requirements including, but not limited to, the time and manner of
sale, the holding period for the Securities, and on requirements relating to the
Company which are outside of the Purchaser’s control, and which the Company is
under no obligation and may not be able to satisfy.
 
Section 3.5. Legends.  The Purchaser understands that the Securities and any
securities issued in respect of or exchange for the Securities, may bear one or
all of the following legends:
 
(a) “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.  NO
SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR, IF REASONABLY REQUESTED BY THE COMPANY, AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933.”
 
(b) Any legend set forth in, or required by, the other Transaction Agreements.
 
(c) Any legend required by the securities laws of any state to the extent such
laws are applicable to the Securities represented by the certificate so
legended.
 
Section 3.6. Accredited Investor.  The Purchaser is an accredited investor as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
 
Section 3.7. No General Solicitation.  Neither the Purchaser, nor any of its
officers, directors, employees, agents, stockholders or partners has either
directly or indirectly, including through a broker or finder (a) engaged in any
general solicitation, or (b) published any advertisement in connection with the
offer and sale of the Securities.
 
 
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Section 3.8. Residence.  The office or offices of the Purchaser in which its
principal place of business is located is identified in the Purchaser’s address
on the signature page of this Agreement.
 
ARTICLE 4.

 
CONDITIONS TO THE PURCHASER’S OBLIGATIONS AT CLOSING.
 
The obligations of the Purchaser to purchase Securities at the Closing are
subject to the fulfillment, on or before such Closing, of each of the following
conditions, unless otherwise waived:
 
Section 4.1. Representations and Warranties.  The representations and warranties
of the Company contained in Section ARTICLE 2  shall be true and correct in all
respects as of such Closing.
 
Section 4.2. Performance.  The Company shall have performed and complied with
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by the Company on
or before such Closing.
 
Section 4.3. Compliance Certificate.  The President of the Company shall deliver
to the Purchaser at the Closing a certificate certifying that the conditions
specified in Section 4.1 and Section 4.2 have been fulfilled.
 
Section 4.4. Qualifications.  All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall be obtained and effective as of such
Closing.
 
Section 4.5. Opinion of Company Counsel.  The Purchaser shall have received from
Hutchinson Black and Cook, LLC, counsel for the Company, an opinion, dated as of
the Closing, in substantially the form of Exhibit L attached to this Agreement.
 
Section 4.6. Board of Directors.  As of the Closing, the authorized size of the
Board shall be five, and the Board shall be comprised of Jack J. Walker
(Chairman), Wayne E. Harding III, Michael S. Barish, J. Michael Wolfe, and one
designee of the Purchaser.  Within thirty (30) days after Closing, Michael S.
Barish shall resign and be replaced with one additional independent director.
 
Section 4.7. Indemnification Agreement.  The Company shall have executed and
delivered the Indemnification Agreement.
 
Section 4.8. Investor’s Rights Agreement.  The Company  shall have executed and
delivered the Investor’s Rights Agreement.
 
 
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Section 4.9. Voting Agreement.  The Company and the other stockholders of the
Company named as parties thereto shall have executed and delivered the Voting
Agreement.
 
Section 4.10. Certificate of Designations.  The Company shall have filed the
Certificate of Designations with the Secretary of State of Nevada on or prior to
the Closing, which shall continue to be in full force and effect as of the
Closing.
 
Section 4.11. Warrant.  The Company shall have executed and delivered the
Warrant.
 
Section 4.12. Intellectual Property Purchase Agreement.  The Company shall have
executed and delivered the Intellectual Property Purchase Agreement and the
transactions contemplated by the Intellectual Property Purchase Agreement shall
have been completed.
 
Section 4.13. Technology License Agreement.  The Company shall have executed and
delivered the Technology License Agreement.
 
Section 4.14. Brand License Agreement.  The Company shall have executed and
delivered the Brand License Agreement.
 
Section 4.15. Collaboration Agreement.  The Company shall have executed and
delivered the Brand License Agreement.
 
Section 4.16. Supply Chain Services Agreement.  The Company shall have executed
and delivered the Supply Chain Services Agreement.
 
Section 4.17. Bylaw Amendment.  The Bylaw Amendment shall have been adopted by
the Company’s Board.
 
Section 4.18. Material Adverse Change.  There shall not have occurred any
Material Adverse Effect (or any development that, insofar as reasonably can be
foreseen, is reasonably likely to result in any Material Adverse Effect).
 
Section 4.19. Secretary’s Certificate.  The Secretary of the Company shall have
delivered to the Purchaser at the Closing a certificate certifying (i) the
Bylaws of the Company, (ii) the Articles of Incorporation of the Company, and
(iii) resolutions of the Board of Directors of the Company approving the
Transaction Agreements, the Certificate of Designations, and the transactions
contemplated under the Transaction Agreements.
 
Section 4.20. Proceedings and Documents.  All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Purchaser, and the Purchaser (or its counsel) shall have received all such
counterpart original and certified or other copies of such documents as
reasonably requested.  Such documents may include good standing certificates.
 
Section 4.21. Preemptive Rights.  The Company shall have fully satisfied
(including with respect to rights of timely notification) or obtained
enforceable waivers in respect of any preemptive or similar rights directly or
indirectly affecting any of its securities.
 
 
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ARTICLE 5.

 
CONDITIONS OF THE COMPANY’S OBLIGATIONS AT CLOSING.
 
The obligations of the Company to sell the Securities to the Purchaser at the
Closing are subject to the fulfillment, on or before the Closing, of each of the
following conditions, unless otherwise waived:
 
Section 5.1. Representations and Warranties.  The representations and warranties
of the Purchaser contained in Section 4.1 shall be true and correct in all
respects as of such Closing.
 
Section 5.2. Performance.  The Purchaser shall have performed and complied with
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by them on or
before such Closing.
 
Section 5.3. Qualifications.  All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall be obtained and effective as of the
Closing.
 
Section 5.4. Investor’s Rights Agreement.  The Purchaser shall have executed and
delivered the Investor’s Rights Agreement.
 
Section 5.5. Voting Agreement.  The Purchaser and the other stockholders of the
Company named as parties thereto shall have executed and delivered the Voting
Agreement.
 
Section 5.6. Warrant.  The Purchaser shall have executed and delivered the
Warrant.
 
Section 5.7. Intellectual Property Purchase Agreement.  OMS shall have executed
and delivered the Intellectual Property Purchase Agreement and the transactions
contemplated by the Intellectual Property Purchase Agreement shall have been
completed.
 
Section 5.8. Technology License Agreement.  The Purchaser shall have executed
and delivered the Technology License Agreement.
 
Section 5.9. Brand License Agreement.  The Purchaser shall have executed and
delivered the Brand License Agreement.
 
Section 5.10. Collaboration Agreement.  OMS and Scotts shall have executed and
delivered the Collaboration Agreement.
 
Section 5.11. Supply Chain Services Agreement.  OMS and Scotts shall have
executed and delivered the Supply Chain Services Agreement
 
 
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ARTICLE 6.

 
CONDUCT OF BUSINESS PENDING THE CLOSING.
 
Section 6.1. Conduct of Business by the Company Pending the Closing.  During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Closing, the Company agrees (except to the
extent that the Purchaser shall otherwise consent in writing), to carry on its
business in the usual, regular and ordinary course and in substantially the same
manner as previously conducted, to use all reasonable efforts consistent with
past practices and policies to preserve intact its present business
organization, keep available the services of its current officers and Key
Employees and consultants and preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it, to the end that its goodwill and ongoing businesses would be
unimpaired, in any material respect, at the Closing. The Company shall promptly
notify Purchaser of any material event or occurrence not in the Ordinary Course
of Business of the Company. By way of amplification and not limitation, except
as contemplated by this Agreement, the Company shall not, between the date of
this Agreement and the Closing, do any of the following without the prior
written consent of the Purchaser:
 
(a) amend or otherwise change its Articles of Incorporation or Bylaws or
equivalent organizational documents;
 
(b) issue, sell, pledge, dispose of, grant, encumber, authorize or propose the
issuance, sale, pledge, disposition, grant or encumbrance of any shares of its
capital stock of any class, or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of such capital stock or any
other ownership interest (including, without limitation, any phantom interest),
of the Company, or accelerate the vesting of any such security, except pursuant
to the terms of options, warrants or preferred stock outstanding on the date of
this Agreement;
 
(c) sell, lease, license, pledge, grant, encumber or otherwise dispose of any of
its properties or assets which are material, individually or in the aggregate,
to its business, except in the Ordinary Course of Business, consistent with past
practice;
 
(d) declare, set aside, make or pay any dividend or other distribution, payable
in cash, stock, property or otherwise, with respect to any of its capital stock;
 
(e) split, combine, subdivide, redeem or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with agreements
providing for the repurchase of shares in connection with any termination of
service by such party, and except in connection with the transactions
contemplated hereby;
 
(f) acquire (including, without limitation, by merger, consolidation, or
acquisition of stock or assets) any interest or any assets in any corporation,
partnership, other business organization or any division thereof;
 
 
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(g) incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any Person, or make any loans or advances;
except in the Ordinary Course of Business, consistent with past practice;
 
(h) enter into any lease or contract for the purchase or sale of any property,
real or personal except in the Ordinary Course of Business, consistent with past
practice;
 
(i) increase, or agree to increase, the compensation (cash, equity or otherwise)
payable, or to become payable, to its officers or employees, except (A) pursuant
to agreements outstanding on the date hereof, (B) as previously disclosed in
writing and delivered to the Purchaser and (C) with respect to non-officer
employees only, such increases as approved by the Company, consistent with past
practices and provided that the Company used reasonable efforts to obtain the
prior approval of the Purchaser, or grant any severance or termination pay
(cash, equity or otherwise) to, or enter into any employment or severance
agreement with, any of its directors, officers or other employees, or establish,
adopt, enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other Company
employee benefit plan, agreement, trust, fund, policy or arrangement for the
benefit of any director, officer or employee; provided, however, that the
foregoing provisions of this section shall not apply to any amendments to
employee benefit plans described in Section 3(3) of ERISA that may be required
by applicable law;
 
(j) authorize cash payments in exchange for any options granted under any of
such plans except as specifically required by the terms of such plans or any
such agreement or any related agreement in effect as of the date of this
Agreement and disclosed in the Disclosure Schedule; and
 
(k) make or change any material Tax election, settle or compromise any Tax
liability, or consent to the extension or waiver of any statute of limitations
with respect to Taxes.
 
Section 6.2. Litigation.  The Company shall notify the Purchaser in writing
promptly after learning of any material claim, action, suit, arbitration,
mediation, proceeding or investigation by or before any court, arbitrator or
arbitration panel, board or other governmental entity initiated by it or against
it, or known by it to be threatened against it or any of its officers,
directors, employees or stockholders in their capacity as such.
 
Section 6.3. Notification of Certain Matters.  The Purchaser shall give
reasonably prompt notice to the Company, and the Company shall give reasonably
prompt notice to the Purchaser, of (i) the occurrence, or non-occurrence, of any
event the occurrence, or non-occurrence, of which would be likely to cause (x)
any representation or warranty contained in this Agreement to be untrue or
inaccurate, in any material respect, or (y) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied, in any
material respect; and (ii) any failure or inability of the Purchaser or the
Company, as the case may be, to comply, in any material respect, with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder.
 
 
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ARTICLE 7.

 
SATISFACTION OF CLOSING CONDITIONS; TERMINATION.
 
Section 7.1. Satisfaction of Closing Conditions.  The Company and the Purchaser
shall each use its reasonable best efforts to satisfy the conditions set forth
in Section 4 and Section 5, respectively.
 
Section 7.2. Termination Events.  This Agreement may be terminated at any time
prior to the Closing:
 
(a) by the mutual written consent of the Company and the Purchaser;
 
(b) by either the Company or the Purchaser, if the Closing shall not have been
consummated by April 30, 2013 for any reason; provided, however, that the right
to terminate this Agreement under this Section 7.2(b) shall not be available to
any party whose action or failure to act has been a principal cause of or
resulted in the failure of the Closing to occur on or before such date and such
action or failure to act constitutes a material breach of this Agreement;
 
(c) by either Company or the Purchaser, if a governmental entity shall have
issued an order, decree or ruling or taken any other action after the date
hereof, in any case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Closing, which order, decree, ruling or other action
shall have become final and non-appealable;
 
(d) by the Company, upon a breach of any representation, warranty, covenant or
agreement on the part of the Purchaser set forth in this Agreement, or if any
representation or warranty of the Purchaser shall have become untrue, in either
case such that the conditions set forth in Section 5.1 or Section 5.2 would not
be satisfied as of the time of such breach or as of the time such representation
or warranty shall have become untrue, provided, that if such inaccuracy in the
Purchaser’s representations and warranties or breach by the Purchaser is curable
by the Purchaser through the exercise of its commercially reasonable efforts,
then the Company may not terminate this Agreement under this Section 7.2(d) for
thirty (30) days after delivery of written notice from the Company to the
Purchaser of such breach, provided the Purchaser continues to exercise
commercially reasonable efforts to cure such breach or inaccuracy (it being
understood that the Company may not terminate this Agreement pursuant to this
paragraph (d) if such breach or inaccuracy by the Purchaser is cured during such
thirty (30) day period);
 
(e) by the Purchaser upon a breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of the Company shall have become untrue, in either
case such that the conditions set forth in Section 4.1 or Section 4.2 would not
be satisfied as of the time of such breach or as of the time such representation
or warranty shall have become untrue, provided, that if such inaccuracy in the
Company’s representations and warranties or breach by the Company is curable by
the Company through the exercise of its commercially reasonable efforts, then
the Purchaser may not terminate this Agreement under this Section 7.2(e) for
thirty (30) days after delivery of written notice from the Purchaser to the
Company of such breach, provided the Company continues to exercise commercially
reasonable efforts to cure such breach or inaccuracy (it being understood that
the Purchaser may not terminate this Agreement pursuant to this paragraph (e) if
such breach or inaccuracy by the Company is cured during such thirty (30)-day
period); or
 
 
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(f) by the Purchaser, if a Material Adverse Effect has occurred prior to the
Closing with respect to the Company; provided, that if such Material Adverse
Effect is curable by the Company through the exercise of its commercially
reasonable efforts, then the Purchaser may not terminate this Agreement under
this Section 7.2(f) for thirty (30) days after delivery of written notice from
the Purchaser to the Company of such Material Adverse Effect, provided the
Company continues to exercise commercially reasonable efforts to cure such
Material Adverse Effect (it being understood that the Purchaser may not
terminate this Agreement pursuant to this paragraph (f) if such Material Adverse
Effect is cured during such thirty (30)-day period).
 
ARTICLE 8.

 
INDEMNIFICATION.
 
Section 8.1. Company Indemnification.  The Company shall defend, protect,
indemnify and hold harmless the Purchaser, and all of its officers, directors,
employees, Affiliates and agents (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the “Purchaser Indemnitees”) from and against any and all
actions, causes of action, suits, claims, costs, penalties, fees, liabilities
and damages, and expenses in connection therewith (irrespective of whether any
such Purchaser Indemnitee is a party to the action for which indemnification
hereunder is sought), including reasonable attorneys’ fees and disbursements
(the “Indemnified Liabilities”), incurred by the Purchaser Indemnitees or any of
them as a result of, or arising out of, or relating to (a) any misrepresentation
or breach of any representation or warranty made by the Company in this
Agreement or any of the agreements contemplated hereby, or (b) any breach of any
covenant, agreement or obligation of the Company contained in this Agreement or
any of the agreements contemplated hereby. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities that is permissible under applicable law. The
indemnification provided for under this Sction 8.1 shall not apply to any
Indemnified Liabilities arising out of the gross negligence or intentional
misconduct of any Purchaser Indemnitee.
 
Section 8.2. Purchaser Indemnification.  The Purchaser shall defend, protect,
indemnify and hold harmless the Company and all of its officers, directors,
employees, Affiliates and agents (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the “Company Indemnitees”) from and against any and all
Indemnified Liabilities incurred by the Company Indemnitees or any of them as a
result of, or arising out of, or relating to (a) any misrepresentation or breach
of any representation or warranty made by the Purchaser in this Agreement or any
of the agreements contemplate hereby, or (b) any breach of any covenant,
agreement or obligation of the Purchaser contained in this Agreement or any of
the agreements contemplated thereby. To the extent that the foregoing
undertaking by the Purchaser may be unenforceable for any reason, the Purchaser
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities that is permissible under applicable law. The
indemnification provided for under this Section 8.2 shall not apply to any
Indemnified Liabilities arising out of the gross negligence or intentional
misconduct of any Company Indemnitee.
 
 
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Section 8.3. Indemnification Threshold.  No amount shall be payable under this
Article 8 unless the aggregate amount of all Indemnified Liabilities otherwise
payable by a party exceeds $100,000, in which event the entire amount of such
Indemnified Liabilities shall be payable from the first dollar. The maximum
amount payable under this Article 8 shall equal the aggregate amount paid by the
Purchaser for the Securities.
 
Section 8.4. Indemnification Procedure.  Any party entitled to indemnification
under this Article 8 (an “Indemnified Party”) will give written notice to the
indemnifying party under this Article 8 (the “Indemnifying Party”) of any matter
giving rise to a claim for indemnification; provided, that the failure of any
party entitled to indemnification hereunder to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Article 8
except to the extent that the Indemnifying Party is actually prejudiced by such
failure to give notice.  In case any such action, proceeding or claim is brought
against an Indemnified Party in respect of which indemnification is sought
hereunder, the Indemnifying Party shall be entitled to participate in and,
unless in the reasonable judgment of the Indemnifying Party a conflict of
interest between it and the Indemnified Party exists with respect to such
action, proceeding or claim (in which case the Indemnifying Party shall be
responsible for the reasonable fees and expenses of one separate counsel for the
indemnified parties), to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party.  In the event that the Indemnifying Party
advises an Indemnified Party that it will not contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the Indemnified Party may, at its option, defend, settle or
otherwise compromise or pay such action or claim.  In any event, unless and
until the Indemnifying Party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the Indemnified Party’s costs
and expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder.  The Indemnified Party shall cooperate fully with the Indemnifying
Party in connection with any negotiation or defense of any such action or claim
by the Indemnifying Party and shall furnish to the Indemnifying Party all
information reasonably available to the Indemnified Party which relates to such
action or claim.  The Indemnifying Party shall keep the Indemnified Party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto.  If the Indemnifying Party elects to defend
any such action or claim, then the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense.  The Indemnifying Party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written
consent.  Notwithstanding anything in this Article 8 to the contrary, the
Indemnifying Party shall not, without the Indemnified Party’s prior written
consent, settle or compromise any claim or consent to entry of any judgment in
respect thereof which imposes any future obligation on the Indemnified Party or
which does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the Indemnified Party of a release from all
liability in respect of such claim.  The indemnification obligations to defend
the Indemnified Party required by this Article 8 shall be made by periodic
payments of the amount thereof during the course of investigation or defense, as
and when bills are received or expense, loss, damage or liability is incurred,
so long as the Indemnified Party shall refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification.  The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the Indemnified Party
against the Indemnifying Party or others, and (b) any liabilities the
Indemnifying Party may be subject to pursuant to the law.  No Indemnifying Party
will be liable to the Indemnified Party under this Agreement to the extent, but
only to the extent that a loss, claim, damage or liability is attributable to
the Indemnified Party’s breach of any of the representations, warranties or
covenants made by such party in this Agreement or in the other Transaction
Agreements.
 
 
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ARTICLE 9.

 
MISCELLANEOUS.
 
Section 9.1. Survival of Warranties.  Unless otherwise set forth in this
Agreement, the representations and warranties of the Company and the Purchaser
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing for one year after the Closing and
shall in no way be affected by any investigation or knowledge of the subject
matter thereof made by or on behalf of the Purchaser or the Company, except (i)
the representations and warranties set forth in Sections 2.16, 2.17, 2.22, 2.24
and 9.7, which will survive the Closing and continue in full force and effect
until the applicable statute of limitations expires (or for 15 years if there is
no applicable statute of limitations) and (ii) the representations and
warranties set forth in Sections 2.1, 2.2, 2.3, 2.4, and 2.5 which will survive
the Closing and will continue in full force and effect forever.
 
Section 9.2. Successors and Assigns.  The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties.  Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
 
Section 9.3. Governing Law.  This Agreement shall be governed by the internal
law of Nevada.
 
Section 9.4. Counterparts.  This Agreement may be executed in two counterparts,
each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.  Counterparts may be delivered via
facsimile, electronic mail (including pdf) or other transmission method and any
counterpart so delivered shall be deemed to have been duly and validly delivered
and be valid and effective for all purposes.
 
Section 9.5. Titles and Subtitles.  The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
 
 
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Section 9.6. Notices.  All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed effectively
given upon the earlier of actual receipt or:  (a) personal delivery to the party
to be notified, (b) when sent, if sent by electronic mail or facsimile during
normal business hours of the recipient, and if not sent during normal business
hours, then on the recipient’s next business day, (c) five (5) days after having
been sent by registered or certified mail, return receipt requested, postage
prepaid, or (d) one (1) business day after deposit with a nationally recognized
overnight courier, freight prepaid, specifying next business day delivery, with
written verification of receipt.  All communications shall be sent to the
respective parties at their address as set forth on the signature page, or to
such e-mail address, facsimile number or address as subsequently modified by
written notice given in accordance with this Section 9.6.  If notice is given to
the Company, a copy shall also be sent to Hutchinson Black and Cook, LLC, 921
Walnut Street, Suite 200 Boulder, CO 80302, Attention: James L. Carpenter, Jr.,
Facsimile: (303) 442-6593  and if notice is given to the Purchaser, a copy shall
also be given to Hunton & Williams, LLP, 2200 Pennsylvania Avenue, N.W.,
Washington, D.C. 20036, Attention: J. Steven Patterson, Facsimile: (202)
778-2201.
 
Section 9.7. No Finder’s Fees.  Except for amounts payable by the Company to
Blue Sage Capital Partners, Inc. upon Closing, each party represents that it
neither is nor will be obligated for any finder’s fee or commission in
connection with this transaction.  The Purchaser agrees to indemnify and to hold
harmless the Company from any liability for any commission or compensation in
the nature of a finder’s or broker’s fee arising out of this transaction
(and the costs and expenses of defending against such liability or asserted
liability) for which the Purchaser or any of its officers, employees, or
representatives is responsible.  The Company agrees to indemnify and hold
harmless the Purchaser from any liability for any commission or compensation
in the nature of a finder’s or broker’s fee arising out of this transaction (and
the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
 
Section 9.8. Amendments and Waivers.  Any term of this Agreement may be amended,
terminated or waived only with the written consent of the Company and the
Purchaser.  Any amendment or waiver effected in accordance with this Section 9.8
shall be binding upon the Purchaser and each transferee of the Securities (or
the Conversion Shares or the Warrant Shares), each future holder of all such
securities, and the Company.
 
Section 9.9. Severability.  The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
 
Section 9.10. Delays or Omissions.  No delay or omission to exercise any right,
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring.  Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing.  All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
 
 
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Section 9.11. Entire Agreement.  This Agreement (including the Exhibits hereto),
the Certificate of Designations and the other Transaction Agreements constitute
the full and entire understanding and agreement between the parties with respect
to the subject matter hereof, and any other written or oral agreement relating
to the subject matter hereof existing between the parties are expressly
canceled.
 
Section 9.12. Dispute Resolution.  The parties (a) hereby irrevocably and
unconditionally submit to the jurisdiction of the state courts of Colorado and
to the jurisdiction of the United States District Court for the District of
Colorado for the purpose of any suit, action or other proceeding arising out of
or based upon this Agreement, (b) agree not to commence any suit, action or
other proceeding arising out of or based upon this Agreement except in the state
courts of Colorado or the United States District Court for the District of
Colorado, and (c) hereby waive, and agree not to assert, by way of motion, as a
defense, or otherwise, in any such suit, action or proceeding, any claim that it
is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court.  The prevailing party in
any such dispute shall be entitled to recover its reasonable attorneys’ fees and
costs incurred, in addition to any other damages.
 
WAIVER OF JURY TRIAL:  EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE
OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR
THEREOF.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND
ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT
MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS.  THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE
PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS.  EACH
PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED
THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL
 
Section 9.13. No Commitment for Additional Financing.  The Company acknowledges
and agrees that the Purchaser has made no representation, undertaking,
commitment or agreement to provide or assist the Company in obtaining any
financing, investment or other assistance, other than the purchase of the
Securities as set forth herein and subject to the conditions set forth
herein.  In addition, the Company acknowledges and agrees that (i) no
statements, whether written or oral, made by the Purchaser or its
representatives on or after the date of this Agreement shall create an
obligation, commitment or agreement to provide or assist the Company in
obtaining any financing or investment, (ii) the Company shall not rely on any
such statement by the Purchaser or its representatives and (iii) an obligation,
commitment or agreement to provide or assist the Company in obtaining any
financing or investment may only be created by a written agreement, signed by
the Purchaser and the Company, setting forth the terms and conditions of such
financing or investment and stating that the parties intend for such writing to
be a binding obligation or agreement.  The Purchaser shall have the right, in
its sole and absolute discretion, to refuse or decline to participate in any
other financing of or investment in the Company, and shall have no obligation to
assist or cooperate with the Company in obtaining any financing, investment or
other assistance.
 
[Signature pages follow.]
 
 
28

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IN WITNESS WHEREOF, the parties have executed this Securities Stock Purchase
Agreement as of the date first written above.
 
COMPANY:
 
AEROGROW INTERNATIONAL, INC.

By: /s/ J. Michael Wolfe                                    
Name: J. Michael S. Wolfe                                                      
Title: President and Chief Executive Officer   

Address:

6075 Longbow Dr. Suite 200,
Boulder, Colorado 80301
Attention:
Facsimile:

PURCHASER:

SMG GROWING MEDIA, INC.

By: /s/ Vincent C. Brockman                          
                           
Name: Vincent C. Brockman                                                      
Title: Executive Vice President and Secretary
   
Address:

14111 Scottslawn Road
Marysville, Ohio 43041
Attention:
Facsimile:
 
 
 
Signature page to Securities Purchase Agreement