Exhibit 10.7
 
AMORTIZATION SCHEDULE
Principal
1,000,000.00
Loan Date
05-21-20101
Maturity
05-21-2014
Loan No
43011870
Call / Coll
Account
Officer
520
Initials
                References in the boxes above are for Lender's use only and do
not limit the applicability of this document to any particular loan or item.
Any item above containing "***,, has been omitted due to text length
limitations.

 

 Borrower:     Aerogrow International, Inc.  Lender:  FIRST WESTERN TRUST BANK
6075 Longbow Drive, Ste 200    Boulder Branch Boulder, CO 80301  1155 Canyon
Blvd.   Suite 300   Boulder, Co 80302   (303) 441-9400

 
================================================================================================================================================================================

Disbursement Date: May 21,
2010                                                     Repayment Schedule:
Balloon
Interest Rate:
7.250                                                                         Calculation
Method: 365/360 U.S. Rule
================================================================================================================================================================================

Payment
   
Payment
   
Payment
   
Interest
   
Principal
   
Remaining
 
Number
   
Date
   
Amount
   
Paid
   
Paid
   
Balance
    1       06-21-2010       24,116.05       6,243.06       17,872.99      
982,127.01     2       07-21-2010       24,116.05       5,933.68       18,182.37
      963,944.64     3       08-21-2010       24,116.05       6,017.96      
18,098.09       945,846.55     4       09-21-2010       24,116.05       5,904.97
      18,211.08       927,635.47     5       10-21-2010       24,116.05      
5,604.46       18,511.59       909,123.88     6       11-21-2010       24,116.05
      5,675.71       18,440.34       890,683.54     7       12-21-2010      
24,116.05       5,381.21       18,734.84       871,948.70  
    2010 TOTALS:
              168,812.35       40,761.05       128,051.30                      
                                    8       01-21-2011       24,116.05      
5,443.62       18,672.43       853,276.27     9       02-21-2011       24,116.05
      5,327.05       18,789.00       834,487.27     10       03-21-2011      
24,116.05       4,705.58       19,410.47       815,076.80     11      
04-21-2011       24,116.05       5,088.57       19,027.48       796,049.32    
12       05-21-2011       24,116.05       4,809.46       19,306.59      
776,742.73     13       06-21-2011       24,116.05       4,849.25      
19,266.80       757,475.93     14       07-21-2011       24,116.05      
4,576.42       19,539.63       737,936.30     15       08-21-2011      
24,116.05       4,606.98       19,509.07       718,427.23     16      
09-21-2011       24,116.05       4,485.18       19,630.87       698,796.36    
17       10-21-2011       24,116.05       4,221.89       19,894.16      
678,902.20     18       11-21-2011       24,116.05       4,238.42      
19,877.63       659,024.57     19       12-21-2011       24,116.05      
3,981.61       20,134.44       638,890.13  
    2011 TOTALS:
              289,392.60       56,334.03       233,058.57          

 
 
 

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

 
 

  20       01-21-2012       24,116.05       3,988.63       20,127.42      
618,762.71     21       02-21-2012       24,116.05       3,862.97      
20,253.08       598,509.63     22       03-21-2012       24,116.05      
3,495.46       20,620.59       577,889.04     23       04-21-2012      
24,116.05       3,607.79       20,508.26       557,380.78     24      
05-21-2012       24,116.05       3,367.51       20,748.54       536,632.24    
25       06-21-2012       24,116.05       3,350.22       20,765.83      
515,866.41     26       07-21-2012       24,116.05       3,116.69      
20,999.36       494,867.05     27       08-21-2012       24,116.05      
3,089.48       21,026.57       473,840.48     28       09-21-2012      
24,116.05       2,958.21       21,157.84       452,682.64     29      
10-21-2012       24,116.05       2,734.96       21,381.09       431,301.55    
30       11-21-2012       24,116.05       2,692.64       21,423.41      
409,878.14     31       12-21-2012       24,116.05       2,476.35      
21,639.70       388,238.44  
    2012 TOTALS:
              289,392.60       38,740.91       250,651.69                      
                                  32       01-21-2013       24,116.05      
2,423.79       21,692.26       366,546.18     33       02-21-2013      
24,116.05       2,288.37       21,827.68       344,718.50     34      
03-21-2013       24,116.05       1,943.83       22,172.22       322,546.28    
35       04-21-2013       24,116.05       2,013.67       22,102.38      
300,443.90     36       05-21-2013       24,116.05       1,815.18      
22,300.87       278,143.03     37       06-21-2013       24,116.05      
1,736.46       22,379.59       255,763.44     38       07-21-2013      
24,116.05       1,545.24       22,570.81       233,192.63     39      
08-21-2013       24,116.05       1,455.83       22,660.22       210,532.41    
40       09-21-2013       24,116.05       1,314.37       22,801.68      
187,730.73     41       10-21-2013       24,116.05       1,134.21      
22,981.84       164,748.89     42       11-21-2013       24,116.05      
1,028.54       23,087.51       141,661.38     43       12-21-2013      
24,116.05       855.87       23,260.18       118,401.20  
    2013 TOTALS:
              289,392.60       19,555.36       269,837,24                      
                                  44       01-21-2014       24,116.05      
739.19       23,376.86       95,024.34     45       02-21-2014       24,116.05  
    593.24       23,522.81       71,501.53     46       03-21-2014      
24,116.05       403.19       23,712.86       47,788.67     47       04-21-2014  
    24,116.05       298.35       23,817.70       23,970.97     48      
05-21-2014       24,115.79       144.82       23,970.97       0.00  
    2014 TOTALS:
              120,579.99       2,178.79       118,401.20          

 
================================================================================================================================================================================

TOTALS:                                                                      1,157,570.14                              157,570.14                         1,000,000.00
 
NOTICE: This is an estimated loan amortization schedule. Actual amounts may vary
jf payments are made on different dates or in different amounts,
================================================================================================================================================================================
LASER PRO lending. Ver. 5.51.00.002 Copr. Harland Financial, Solutions, 1997.
2010. All Right Reserved. CO C:\LASERPRO\CFI\LPL\C10.FC TR·2636 PR-6
 
 
 

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

 
 
CORPORATE RESOLUTION TO BORROW / GRANT COLLATERAL
Principal
$1,000,000.00
Loan Date
05-21-2010
Maturity
05-21-2014
Loan No
43011870
Call/Coll
Account
Officer
520
Initials
References in the boxes above are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

 
 

 Borrower:     Aerogrow International, Inc.  Lender:  FIRST WESTERN TRUST BANK
6075 Longbow Drive, Ste 200    Boulder Branch Boulder, CO 80301  1155 Canyon
Blvd.   Suite 300   Boulder, Co 80302   (303) 441-9400

 
================================================================================================================================================================================
 
I, THE UNDERSIGNED, DO HEREBY CERTIFY AND STATE UNDER PENALTY OF PERJURY THAT:

THE CORPORATION'S EXISTENCE. The complete and correct name of the Corporation is
Aerogrow International, Inc. ("Corporation"). The Corporation is a corporation
for profit which is, and at all times shall be, duly organized, validly
existing, and in good standing under and by virtue of the laws of the State of
Nevada. The Corporation is duly authorized to transact business in the State of
Colorado and all other states in which the Corporation is doing business, having
obtained all necessary filings, governmental licenses and approvals for each
state in which the Corporation is doing business. Specifically, the Corporation
is, and at all times shall be, duly qualified as a foreign corporation in all
states in which the failure to so qualify would have a material adverse effect
on its business or financial condition. The Corporation has the full power and
authority to own its properties and to transact the business in which it is
presently engaged or presently proposes to engage. The Corporation maintains an
office at 6075 Longbow Drive, Ste 200, Boulder, CO 80301. Unless the Corporation
has designated otherwise in writing, the principal office is the office at which
the Corporation keeps its books and records. The Corporation will notify Lender
prior to any change in the location of the Corporation's state of organization
or any change in the Corporation's name. The Corporation shall do all things
necessary to preserve and to keep in full force and effect its existence, rights
and privileges, and shall comply with all regulations, rules, ordinances,
statutes, orders and decrees of any governmental or quasi~governmental authority
or court applicable to the Corporation and the Corporation's business
activities.

RESOLUTIONS ADOPTED. At a meeting of the Directors of the Corporation, or if the
Corporation is a close corporation having no Board of Directors then at a
meeting of the Corporation's shareholders, duly called and on May 19, 2010, at
which a quorum was present and voting, or by other duly authorized action in
lieu of a meeting, the resolutions set forth in this Resolution were adopted.
 
OFFICER. The following named person is an officer of Aerogrow International,
Inc:
 

Names    TITLES AUTHORIZED      Jack J. Walker   Chief Executive Officer   
    Y              X       [aerogrowwalkersig2.jpg]

 
 
 

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

 
 
ACTIONS AUTHORIZED. The authorized person listed above may enter into any
agreements of any nature with Lender, and those agreements will bind the
Corporation. Specifically, but without limitation, the authorized person is
authorized, empowered, and directed to do the following for and on behalf of the
Corporation:
 
Borrow Money. To borrow, as a cosigner or otherwise, from time to time from
Lender, on such terms as may be agreed upon between the Corporation and Lender,
such sum or sums of money as in his or her judgment should be borrowed, without
limitation.
 
Execute Notes. To execute and deliver to Lender the promissory note or notes, or
other evidence of the Corporation's credit accommodations, on Lender's forms, at
such rates of interest and on such terms as may be agreed upon, evidencing the
sums of money so borrowed or any of the Corporation's indebtedness to, Lender,
and also to execute and deliver to Lender one or more renewals, extensions,
modifications, refinancings, consolidations, or substitutions for one or more of
the notes, any portion of the notes, or any other evidence of credit
accommodations.
 
Grant Security. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender any property now or hereafter belonging
to the Corporation or in which the Corporation now or hereafter may have an
interest, including without limitation all of the Corporation's real property
and all of the Corporation's personal property (tangible or intangible), as
security for the payment of any loans or credit accommodations so obtained, any
promissory notes so executed (including any amendments to or modifications,
renewals, and extensions of such promissory notes), or any other or further
indebtedness of the Corporation to Lender at any time owing, however
the same may be evidenced and as a security for the payment of any loans, any
promissory notes, or any other or further indebtedness of Aerogrow
International, Inc. to Lender at any time owing, however the same may be
evidenced. Such property may be mortgaged, pledged, transferred, endorsed,
hypothecated or encumbered at the t1me such loans are obtained or such
indebtedness is incurred, or at any other time or times, and may be either in
addition to or in lieu of any property theretofore mortgaged, pledged,
transferred, endorsed, hypothecated or encumbered. The provisions of this
Resolution authorizing or relating to the pledge, mortgage, transfer,
endorsement,
hypothecation, granting of a security interest in, or in any way encumbering,
the assets of the Corporation shall include, without limitation, doing so in
order to lend collateral security for the indebtedness, now or hereafter
existing, and of any nature whatsoever, of Aerogrow International, Inc. to
Lender. The Corporation has considered the value to itself of lending collateral
in support of such indebtedness, and the Corporation represents to Lender that
the Corporation is benefited by doing so.

Execute Security Documents. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and other
security agreements and financing statements which Lender may require and which
shall evidence the terms and conditions under and pursuant to which such liens
and encumbrances, or any of them, are given; and also to execute and deliver to
Lender any other written instruments, any chattel paper, or any other
collateral, of any kind or nature, which Lender may deem necessary or proper in
connection with or pertaining to the giving of the liens and encumbrances.
Negotiate Items. To draw, endorse, and discount with Lender all drafts, trade
acceptances, promissory notes, or other evidences of indebtedness payable to or
belonging to the Corporation or in which the Corporation may have an interest,
and either to receive cash for the same or to cause such proceeds to be credited
to the Corporation's account with Lender, or to cause such other disposition of
the proceeds derived therefrom as he or she may deem advisable. Further Acts. In
the case of lines of credit, to designate additional or alternate individuals as
being authorized to request advances under such lines, and in all cases, to do
and perform such other acts and things, to pay any and all fees and costs, and
to execute and deliver such other documents and agreements, including agreements
waiving the right to a trial by jury, as the officer may in his or her
discretion deem reasonably necessary or proper in order to carry into effect the
provisions of this Resolution.

 
 

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

 
 
ASSUMED BUSINESS NAMES. The Corporation has filed or recorded all documents or
filings required by law relating to all assumed business names used by the
Corporation. Excluding the name of the Corporation, the following is a complete
list of all assumed business names under which the Corporation does business:
None.
 
NOTICES TO LENDER. The Corporation will promptly notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (A) change in the Corporation's name; (8) change
in the Corporation's assumed business name(s); (C) change in the management of
the Corporation; (0) change in the authorized signer(s); (E) change in the
Corporation's principal office address; (F) change in the Corporation's state of
organization; (G) conversion of the Corporation to a new or different type of
business entity; or (H) change in any other aspect of the Corporation that
directly or indirectly relates to any agreements between the Corporation and
Lender. No change in the Corporation's name or state of organization will take
effect until after Lender has received notice.
 
CERTIFICATION CONCERNING OFFICERS AND RESOLUTIONS. The officer named above is
duly elected, appointed, or employed by or  for the Corporation, as the case may
be, and occupies the position set opposite his or her respective name. This
Resolution now stands of record on the books of the Corporation, is in full
force and effect, and has not been modified or revoked in any manner whatsoever.
NO CORPORATE SEAL. The Corporation has no corporate seal, and therefore no seal
is affixed to this Resolution. CONTINUING VALIDITY. Any and all acts authorized
pursuant to this Resolution and performed prior to the passage of this
Resolution are hereby ratified and approved. This Resolution shall be
continuing, shall remain in full force and effect and Lender may rely on it
until written notice of its revocation shall have been delivered to and received
by Lender at Lender's address shown above (or such addresses as Lender may
designate from time to time). Any such notice shall not affect any of the
Corporation's agreements or commitments in effect at the time notice is given.
IN TESTIMONY WHEREOF, I have hereunto set my hand and attest that the signature
set opposite the name listed above is his or her genuine signature. I have read
all the provisions of this Resolution, and I personally and on behalf of the
Corporation certify that all statements and representations made in this
Resolution are true and correct. This Corporate Resolution to Borrow / Grant
Collateral is dated May 21, 2010.
 
 
 

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

 
 
CORPORATE RESOLUTION TO BORROW / GRANT COLLATERAL
 
Loan No: 43011870                                                   (Continued)
================================================================================================================================================================================

[aerogrow10-7img1.jpg]
 

 
 
 

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

 
 
BUSINESS LOAN AGREEMENT
 
Principal
$1,000,000.00
Loan Date
05-21-2010
Maturity
05-21-2014
Loan No
43011870
Call/Coll
Account
Officer
520
Initials
References in the boxes above are for Lender’s use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

 

 Borrower:     Aerogrow International, Inc.  Lender:  FIRST WESTERN TRUST BANK
6075 Longbow Drive, Ste 200    Boulder Branch Boulder, CO 80301  1155 Canyon
Blvd.   Suite 300   Boulder, Co 80302   (303) 441-9400

 
================================================================================================================================================================================
THIS BUSINESS LOAN AGREEMENT dated May 21, 2010, is made and executed between
Aerogrow International, Inc. ("Borrower") and FIRST WESTERN Trust BANK
("Lender") on the following terms and conditions. Borrower has received prior
commercial loans from Lender or has applied to Lender for a commercial loan or
loans or other financial accommodations, including those which may be described
on any exhibit or schedule attached to this Agreement. Borrower understands and
agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying
upon Borrower's representations, warranties, and agreements as set forth in this
Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all
tims shall be subject to Lender's sole Judgment and discretion; and (C) all such
Loans shall be and remain subject to the terms and conditions of this Agreement.
 
TERM. This Agreement shall be effective as of May 21, 2010, and shall continue
In full force and effect until such time as all of Borrower's Loans in favor of
lender have been paid In full, including principal, Interest, costs, expenses,
attorneys' fees, and other fees and charges, or until May 21,2014.
 
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to lender's satisfaction of all of the conditions set forth in this
Agreement and in the Related Documents.
 
Loan Documents. Borrower shall provide to lender the following documents for the
Loan: (1) the Note; (2) Security Agreements granting to Lender security
interests In the Collateral; (3) financing statements and all other documents
perfecting Lender's Security Interests; (4) evidence of insurance as required
below; (5). guaranties; (6) together with all such Related Documents as Lender
may require for the Loan; all in form and substance satisfactory to Lender and
Lender's counsel.
 
Borrower's Authorization. Borrower shall have provided in form and substance
satisfactory to Lender properly certified resolutions, duly authorizing the
execution and delivery of this Agreement, the Note and the Related Documents. In
addition, Borrower shall have provided such other resolutions, authorizations,
documents and Instruments as Lender or its counsel, may require.
 
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in this
Agreement or any Related Document.
 
Representations and Warranties. The representations and warranties set forth in
this Agreement, In the Related Documents, and in any document or certificate
delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under this Agreement or
under any Related Document.
 
 
 

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

 
 
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
 
Organization, Borrower is a corporation for profit which is, and at all limes
shall be, duly organized, validly existing, and in good standing under and by
virtue of the laws of the State of Nevada. Borrower is duly authorized to
transact business in all other states in which Borrower is doing business,
having obtained all necessary filings, governmental licenses and approvals for
each state in which Borrower is doing business. Specifically, Borrower is, and
at all times shall be, duly qualified as a foreign corporation in all states in
which the failure to so qualify would have a material adverse effect on its
business or financial condition. Borrower has the full power and authority to
own its properties and to transact the business in which it is presently engaged
or presently proposes to engage. Borrower maintains an office at 6075 Longbow
Drive, Ste 200, Boulder, CO 80301. Unless Borrower has designated otherwise in
writing, the principal office is the office at which Borrower keeps its books
and records including its records concerning the Collateral. Borrower will
notify lender prior to any change in the location of Borrower's state
of organization or any change in Borrower's name. Borrower shall do all things
necessary to preserve and to keep in full force and effect its existence, rights
and privileges, and shall comply with all regulations, rules, ordinances,
statutes, orders and decrees of any governmental or quasi-governmental authority
or court applicable to Borrower and Borrower's business activities. Assumed
Business Names. Borrower has filed or recorded all documents or filings required
by law relating to all assumed business names used by Borrower. Excluding the
name of Borrower, the following is a complete list of all assumed business names
under which Borrower does business: None.
 
Authorization. Borrower's execution, delivery, and performance of this Agreement
and all the Related Documents have been duly authorized by all necessary action
by Borrower and do not conflict with, result in a violation of, or  constitute a
default under (1) any provision of (a) Borrower's articles of Incorporation or
organization, or bylaws, or (b) any agreement or other instrument binding upon
Borrower or (2) any law, governmental regulation, court decree, or order
applicable to Borrower or to Borrower's properties.
 
Financial Information. Each of Borrower's financial statements supplied to
Lender truly and completely disclosed Borrower's financial condition as of the
date of the statement, and there has been no material adverse change In
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
 
Legal Effect. This Agreement constitutes, and any instrument or agreement
Borrower is required to give under this Agreement when delivered will constitute
legal, valid, and binding obligations of Borrower enforceable against Borrower
in accordance with their respective terms. Properties. Except as contemplated by
this Agreement or as previously disclosed in Borrower's financial statements or
in writing to Lender and as accepted by Lender, and except for property tax
liens for taxes not presently due and payable, Borrower owns and has good title
to all of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal name,
and Borrower has not used or filed a financing statement under any other name
for at least the last five (5) years.
 
 
 

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

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

 
 

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  BUSINESS LOAN AGREEMENT   Loan No: 43011870  (Continued) Page 2

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Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against Borrower
is pending or threatened, and no other event has occurred which may materially
adversely affect Borrower's financial condition or properties, other than
litigation, claims, or other events, if any, that have been disclosed to and
acknowledged by Lender in writing.
 
Taxes, To the best of Borrower's knowledge, all of Borrower's tax returns and
reports that are or were required to be filed, have been filed, and all taxes,
assessments and other governmental charges have been paid In full, except those
presently being or to be contested by Borrower in good faith in the ordinary
course of business and for which adequate reserves have been provided.
 
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or permitted
the filing or attachment of any Security Interests on or affecting any of the
Collateral directly or indirectly securing repayment of Borrower's Loan and
Note, that would be prior or that may in any way be superior to Lender's
Security Interests and rights in and to such Collateral.
 
Binding Effect. This Agreement, the Note, all Security Agreements (if any), and
all Related Documents are binding upon the signers thereof, as well as upon
their successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
 
AFFIRMATIVE COVENANTS, Borrower covenants and agrees with Lender that, so long
as this Agreement remains In effect, Borrower will:
 
Notices of Claims and Litigation, Promptly inform Lender in writing of (1) all
material adverse changes 'In Borrower's financial condition, and (2) all
existing and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial condition
of any Guarantor,
 
Financial Records, Maintain its books and records in accordance with GAAP,
applied on a consistent basis, and permit Lender to examine and audit Borrower's
books and records at all reasonable times.
 
Financial Statements. Furnish Lender with the following:
 
    Annual Statements. As soon as available, but in no event later than sixty
(60) days after the end of each fiscal year, Borrower's balance sheet and income
statement for the year ended, prepared by Borrower.
   
    Interim Statements, As soon as available, but in no event later than thirty
(30) days after the end of each fiscal quarter, Borrower's balance sheet and
profit and loss statement for the period ended, prepared by Borrower.
   
    Tax Returns. As soon as available, but in no event later than sixty (60)
days after the applicable filing date for the tax reporting period ended,
Federal and other governmental tax returns, prepared by a certified public
accountant satisfactory to Lender. All financial reports required to be provided
under this Agreement shall be prepared in accordance with GAAP, applied on a
consistent basis, and certified by Borrower as being true and correct,
 
Additional Information. Furnish such additional information and statements, as
Lender may request from time to time,
 
 
 

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Insurance. Maintain fire and other risk insurance, public liability insurance,
and such other insurance as Lender may require with respect to Borrower's
properties and operations, in form, amounts, coverages and with insurance
companies acceptable to Lender, Borrower, upon request of Lender, will deliver
to Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least thirty (3D) days prior written notice
to Lender. Each insurance policy also shall include an endorsement providing
that coverage in favor of Lender will not be Impaired in any way by any act,
omission or default of Borrower or any other person, In connection with all
policies covering assets in which Lender holds or is offered a security interest
for the Loans, Borrower will provide Lender with such lender's loss payable or
other endorsements as Lender may require,
 
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, Including without limitation the following: (1) the name of the
insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties
Insured; (5) the then current property values on the basis of which insurance
has been obtained, and the manner of determining those values; and (6) the
expiration date of the policy. In addition, upon request of Lender (however not
more often than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value or
replacement cost of any Collateral. The cost of such appraisal shall be paid by
Borrower.
 
Guaranties. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantor named
below, on Lender's forms, and in the amount and under the conditions set forth
in those guaranties.
 
Name of
Guarantor                                                                                                           Amount
Jack J.
Walker                                                                                          $1,000,000.00
 
Other Agreements. Comply with all terms and conditions of all other agreements,
whether now or hereafter existing, between Borrower and any other party and
notify Lender immediately in writing of any default in connection with any other
such agreements.
 
Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations,
unless specifically consented to the contrary by Lender in writing,
 
Taxes, Charges and Liens. Pay and discharge when due all of its Indebtedness and
obligations, Including without limitation all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, Income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower's properties, income, or profits, Provided however,
Borrower will not be required to pay and discharge any such assessment, tax,
charge, levy, lien or claim so long as (1) the legality of the same shall be
contested in good faith by appropriate proceedings, and (2) Borrower shall have
established on Borrower's books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with GAAP.
 
Performance. Perform and comply, in a timely manner, with all terms, conditions,
and provisions set forth in this Agreement, in the Related Documents, and in all
other instruments and agreements between Borrower and Lender. Borrower shall
notify Lender immediately in writing of any default in connection with any
agreement.
 
 
 

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Operations. Maintain executive and management personnel with substantially the
same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner.
 
Environmental Studies. Promptly conduct and complete, at Borrower's expense, all
such investigations, studies, samplings and testings as may be requested by
Lender or any governmental authority relative to any substance, or any waste or
by-product of any substance defined as toxic or a hazardous substance under
applicable federal, state, or local law, rule, regulation, order or directive,
at or affecting any property or any facility owned, leased or used by Borrower.
 
Compliance with Governmental Requirements. Comply with all laws, ordinances, and
regulations, now or hereafter in effect, of all governmental authorities
applicable to the conduct of Borrower's properties, businesses and operations,
and to the use or occupancy of the Collateral, including without limitation, the
Americans With Disabilities Act. Borrower may contest in good faith any such
law, ordinance, or regulation and withhold compliance during any proceeding,
including appropriate appeals, so long as Borrower has notified Lender in
writing prior to doing so and so long as, in Lender's sole opinion, Lender's
interests in the Collateral are not jeopardized, Lender may require Borrower to
post adequate security or a surety bond, reasonably satisfactory to Lender, to
protect lender's interest.
 
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts, and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) In the. possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of any records
it may request, all at Borrower's expense,
 
Environmental Compliance and Reports. Borrower shall comply in all respects with
any and all Environmental Laws; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on Borrower's part or on the
part of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower's part in connection with any environmental activity whether or not
there is damage to the environment and/or other natural resources,
 
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, assignments, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to perfect
all Security Interests.
 
 
 

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  BUSINESS LOAN AGREEMENT   Loan No: 43011870  (Continued) Page 3

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

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
 
Indebtedness and Liens. (1) Except for trade debt Incurred in the normal course
of business and indebtedness to Lender contemplated by this Agreement, create,
incur or assume indebtedness for borrowed money, including capital leases, (2)
sell, transfer, mortgage, assign, pledge, lease, grant a security interest In,
or encumber any of Borrower's assets (except as allowed as Permitted Liens), or
(3) sell with recourse any of Borrower's accounts, except to Lender. 
 
Continuity of Operations. (1) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (2) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change its name, dissolve or transfer or sell Collateral out of the
ordinary course of business, or (3) pay any dividends on Borrower's stock (other
than dividends payable in its stock), provided, however that notwithstanding the
foregoing, but only so long as no Event of Default has occurred and is
continuing or would result from the payment of dividends, if Borrower is a
"Subchapter S Corporation" (as defined In the internal Revenue Code of 1986,
as amended), Borrower may pay cash dividends on its stock to its shareholders
from time to time In amounts necessary to enable the shareholders to pay income
taxes and make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of Borrower's
stock, or purchase or retire any of Borrower's outstanding shares or alter or
amend Borrower's capital structure. 
 
Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or
assets to any other person, enterprise or entity, (2) purchase, create or
acquire any Interest In any other enterprise or entity, or (3) incur any
obligation as surety or guarantor other than in the ordinary course of
business. 
 
Agreements. Enter into any agreement containing any provisions which would be
violated or breached by the performance of Borrower's obligations under this
Agreement or in connection herewith.
 
 
 

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CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds If:
(A) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes
incompetent or becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse
change in Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; or (D) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender; or (E) Lender in
good faith deems itself insecure, even though no Event of Default shall have
occurred.
 
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff In all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts, and, at Lender's option, to
administratively freeze all such accounts to allow Lender to protect Lender's
charge and setoff rights provided In this paragraph.
 
DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:
 
Payment Default. Borrower falls to make any payment when due under the Loan.
 
Other Defaults. Borrower falls to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in any of the
Related Documents or to comply with or to perform any term, obligation, covenant
or condition contained in any other agreement between Lender and Borrower.
 
False Statements. Any warranty, representation or statement made or furnished to
Lender by Borrower or on Borrower's behalf under this Agreement or the Related
Documents is false or misleading In any material respect, either now or at the
time made or furnished or becomes false or misleading at any time thereafter.
 
Insolvency. The dissolution or termination of Borrower's existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any part
of Borrower's property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Borrower.
 
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
document to create a valid and perfected security interest or lien) at any time
and for any reason.
 
 
 

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Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or by any governmental agency against
any collateral securing the Loan. This includes a garnishment of any of
Borrower's accounts, including deposit accounts, with Lender. However, this
Event of Default shall not apply if there is a good faith dispute by Borrower as
to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and If Borrower gives Lender written notice of
the creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, in its sole discretion, as being an adequate reserve or bond for the
dispute.
 
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness.
 
Change in Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
 
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the Loan
is impaired. Insecurity. Lender in good faith believes itself insecure.
 
Right to Cure. If any default, other than a default on Indebtedness, is curable
and If Borrower or Grantor, as the case may be, has not been given a notice of a
similar default within the preceding twelve (12) months, it may be cured if
Borrower or Grantor, as the case may be, after Lender sends written notice to
Borrower or Grantor, as the case may be, demanding cure of such default: (1)
cure the default within twenty (20) days; or (2) if the cure requires more than
twenty (20) days, immediately initiate steps which Lender deems 10 Lender's sole
discretion to be sufficient to cure the default and thereafter continue and
complete all reasonable and necessary steps sufficient to produce compliance as
soon as reasonably practical.
 
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
further Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any
Grantor shall not affect Lender's right to declare a default and to exercise its
rights and remedies.
 
MATERIALITY CLAUSE. Borrower's actions In the ordinary course of business that
do not have the effect of creating a material adverse change in the Borrower's
financial conditions are permitted, irrespective of any restrictions contained
herein.
 
 
 

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  BUSINESS LOAN AGREEMENT   Loan No: 43011870  (Continued) Page 4

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

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

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

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

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

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

 
 

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

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

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

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

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

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

 
 

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

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

DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. Accounting
words and terms not otherwise defined in this Agreement shall have the meanings
assigned to them in accordance with generally accepted accounting principles as
in effect on the date of this Agreement:
 
Advance. The word "Advance" means a disbursement of loan funds made, or to be
made, to Borrower or on Borrower's behalf on a line of credit or multiple
advance basis under the terms and conditions of this Agreement.

Agreement. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time, together
with all exhibits and schedules attached to this Business Loan Agreement from
time to time.
 
Borrower. The word "Borrower" means Aerogrow International, Inc. and includes
all co-signers and co-makers signing the Note and all their successors and
assigns.
          
Collateral. The word "Collateral" means all property and assets granted as
collateral security for a Loan, whether real or personal property, whether
granted directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage, collateral
mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage,
collateral chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien, charge, lien or title retention contract,
lease or consignment intended as a security device, or any other security or
lien Interest whatsoever, whether created by law, contract, or otherwise.
 
Environmental Laws, The words "Environmental Laws" mean any and all state,
federal and local statutes, regulations and ordinances relating to the
protection of human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments
and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other
applicable state or federal laws, rules, or regulations adopted pursuant
thereto.
 
Event of Default. The words "Event of Default" mean any of the events of default
set forth in this Agreement in the default section of this Agreement.
 
GAAP, The word "GAAP" means generally accepted accounting principles.

 
 

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  BUSINESS LOAN AGREEMENT   Loan No: 43011870  (Continued) Page 5

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Grantor. The word "Grantor" means each and all of the persons or entities
granting a Security Interest in any Collateral for the Loan, including without
limitation all Borrowers granting such a Security Interest.
 
Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation
party of any or all of the Loan. Guaranty. The word "Guaranty" means the
guaranty from Guarantor to Lender, including without limitation a guaranty of
all or part of the Note.

Hazardous Substances. The words "Hazardous Substances" mean materials that,
because of their quantity, concentration or physical, chemical or infectious
characteristics, may cause or pose a present or potential hazard to human health
or the environment when improperly used, treated, stored, disposed of,
generated, manufactured, transported or otherwise handled. The words 'Hazardous
Substances" are used in their very broadest sense and include without limitation
any and all hazardous or toxic substances, materials or waste as defined by or
listed under the Environmental Laws. The term "Hazardous Substances" also
includes, without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos.
 
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the
Note or Related Documents, including all principal and interest together with
all other indebtedness and costs and expenses for which Borrower is responsible
under this Agreement or under any of the Related Documents.
 
Lender. The word "Lender" means FIRST WESTERN TRUST BANK, its successors and
assigns.

Loan. The word "Loan" means any and all loans and financial accommodations from
lender to Borrower, whether now or hereafter existing. and however evidenced,
including without limitation those loans and financial  accommodations described
herein or described on any exhibit or schedule attached to this Agreement from
time to time.
 
Note. The word "Note" means the Note executed by Aerogrow International, Inc. in
the principal amount of $1 ,000,000.00 dated May 21, 2010, together with all
renewals of, extensions of, modifications of, refinancings of, consolidations
of, and substitutions for the note or credit agreement.

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

 
 

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Related Documents. The words "Related Documents" mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the loan. Security Agreement.
The words "Security Agreement" mean and include without limitation any
agreements, promises, covenants, arrangements, understandings or other
agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.
 
Security Interest. The words "Security Interest" mean, without limitation, any
and all types of collateral security, present and future, whether in the form of
a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment,
pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever whether created by law, contract,
or otherwise.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS
DATED MAY 21, 2010.
[aerogrow10-7img2.jpg]

 
 
 

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FIRST WESTERN TRUST BANK
PROMISSORY NOTE
Principal
$1,000,000.00
Loan Date
05-21-2010
Maturity
05-21-2014
Loan No
43011870
Call/Coll
Account
Officer
520
Initials
References in the boxes above are for Lender’s use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

 

 Borrower:     Aerogrow International, Inc.  Lender:  FIRST WESTERN TRUST BANK
6075 Longbow Drive, Ste 200    Boulder Branch Boulder, CO 80301  1155 Canyon
Blvd.   Suite 300   Boulder, CO 80302   (303) 441-9400

================================================================================================================================================================================
Principal Amount:
$1,000,000.00                                                                                                                                Date
of Note: May 21, 2010

PROMISE TO PAY. Aerogrow International, Inc. ("Borrower") promises to pay to
FIRST WESTERN TRUST BANK ("Lender"), or order, In lawful money of the United
States of America, the principal amount of One Million & 00/100 Dollars
($1,000,000.00), together with Interest on the unpaid principal balance from May
21, 2010, calculated as described In the "INTEREST CALCULATION METHOD" paragraph
using an Interest rate of 7.250% per annum based on a year of 360 days, until
paid In full. The Interest rate may change under the terms and conditions of the
“INTEREST AFTER DEFAULT" section.

PAYMENT. Borrower will pay this loan In 47 regular payments of $24,116.05 each
and one irregular last payment estimated at $24,115.79. Borrower's first payment
is due June 21, 2010, and all subsequent payments are due on the same day of
each month after that. Borrower's final payment will be due on May 21, 2014, and
will be for all principal and all accrued Interest not yet paid. Payments
Include principal and Interest. Unless otherwise agreed or required by
applicable law, payments will be applied first to any accrued unpaid Interest;
then to principal; then to any late charges; and then to any unpaid collection
costs. Borrower will pay Lender at Lender's address shown above or at such other
place as Lender may designate In writing.

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

INTEREST CALCULATION METHOD. Interest on this Note Is computed on a 365/360
basis; that is, by applying the ratio of the Interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance Is outstanding. All interest payable under
this Note is computed using this method.

 
 

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

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

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

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

DEFAULT. Each of the following shall constitute an event of default ("Event of
Default") under this Note:
 
Payment Default. Borrower fails to make any payment when due under this Note.

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

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

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

 
 

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

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

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

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

Insecurity. Lender in good faith believes itself insecure.

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

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

ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect
this Note if Borrower does not pay. Borrower will pay Lender the reasonable
costs of such collection. This includes, subject to any limits under applicable
law, Lender's attorneys' fees and Lender's legal expenses, whether or not there
is a lawsuit, including without limitation attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), and appeals. If not prohibited by applicable law, Borrower
also will pay any court costs, in addition 10 all other sums provided by law.

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

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

 
 

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  PROMISSORY NOTE   Loan No: 43011870  (Continued) Page 2

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

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

COLLATERAL. Borrower acknowledges this Note Is secured by the following
collateral described in the security instrument listed herein: Inventory,
chattel paper, accounts, equipment, general intangibles and fixtures described
In a Commercial Security Agreement dated May 21, 2010.

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

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

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

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

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE. BORROWER ACKNOWLEDGES
RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
[aerogrow10-7img2.jpg]

 
 
 

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COMMERCIAL GUARANTY
Principal
Loan Date
Maturity
Loan No
Call / Coll
Account
Officer
520
Initials
References in the boxes above are for Lender’s use only and do not limit the
applicability of this document to particular loan or item.
Any item above containing “***” has been  omitted due to text length
limitations.

 

 Borrower:     Aerogrow International, Inc.  Lender:  FIRST WESTERN TRUST BANK
6075 Longbow Drive, Ste 200    Boulder Branch Boulder, CO 80301  1155 Canyon
Blvd.   Suite 300   Boulder, CO 80302   (303) 441-9400

Guarantor:    Jack J. Walker
        2105 11th Street
        Boulder, CO 80302
================================================================================================================================================================================

CONTINUING GUARANTEE OF PAYMENT AND PERFORMANCE. For good and valuable
consideration, Guarantor absolutely and unconditionally guarantees full and
punctual payment and satisfaction of Guarantor's Share of the Indebtedness of
Borrower to Lender, and the performance and discharge of ail Borrower's
obligations under the Note and the Related Documents. This is a guaranty of
payment and performance and not of collection, so Lender can enforce this
Guaranty against Guarantor even when Lender has not exhausted Lender's remedies
against anyone else obligated to pay the Indebtedness or against any collateral
securing the Indebtedness, this Guaranty or any other guaranty of the
Indebtedness. Guarantor will make any payments to Lender or Its order, on
demand, in legal tender of the United States of America, in same-day funds,
without set-off or deduction or counterclaim, and will otherwise perform
Borrower's obligations under the Note and Related Documents. Under this
Guaranty, Guarantor's obligations are continuing.

INDEBTEDNESS. The word "Indebtedness" as used in this Guaranty means all of the
principal amount outstanding from time to time and at any one or more times,
accrued unpaid interest thereon and all collection costs and legal expenses
related thereto permitted by law, attorneys' fees, arising from any and all
debts, liabilities and obligations of every nature or form, now existing or
hereafter arising or acquired, that Borrower individually or collectively or
interchangeably with others, owes or will owe Lender. "Indebtedness" includes,
without limitation, loans, advances, debts, overdraft indebtedness, credit card
indebtedness, lease obligations, liabilities and obligations under any Interest
rate protection agreements or foreign currency exchange agreements or commodity
price protection agreements, other obligations, and liabilities of Borrower, and
any present or future judgments against Borrower, future advances, loans or
transactions that renew, extend, modify, refinance, consolidate or substitute
these debts, liabilities and obligations whether: voluntarily or involuntarily
incurred', due or to become due by their terms or acceleration: absolute or
contingent: liquidated or unliquidated: determined or undetermined: direct or
indirect; primary or secondary in nature or arising from a guaranty or surety;
secured or unsecured: joint or several or joint and several; evidenced by a
negotiable or non-negotiable Instrument or writing: originated by Lender or
another or others: barred or unenforceable against Borrower for any reason
whatsoever; for any transactions that may be voidable for any reason (such as
infancy, insanity, ultra vires or otherwise): and originated then reduced or
extinguished and then afterwards increased or reinstated.

If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, Lender's rights under all guaranties shall
be cumulative. This Guaranty shall not (unless specifically provided below to
the contrary) affect or Invalidate any such other guaranties. Guarantor's
liability will be Guarantor's aggregate liability under the terms of this
Guaranty and any such other unterminated guaranties.
 
 
 

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

 
 
GUARANTOR'S SHARE OF THE INDEBTEDNESS. The words "Guarantor's Share of the
Indebtedness" as used in this Guaranty mean an amount not to exceed One Million
& 00/100 Dollars ($1,000,000.00) of all the principal amount, interest thereon
to the extent not prohibited by law, and all collection costs, expenses and
attorneys' fees whether or not there Is a lawsuit, and if there is a lawsuit,
any fees and costs for trial and appeals.

Guarantor's Share of the Indebtedness will only be reduced by sums actually paid
by Guarantor under this Guaranty, but will not be reduced by sums from any other
source Including, but not limited to, sums realized from any collateral securing
the Indebtedness or this Guaranty, or payments by anyone other than Guarantor,
or reductions by operation of law, judicial order or equitable principles,
Lender has the sole and absolute discretion to determine how sums shall be
applied among guaranties of the Indebtedness.
 
The above limitation on liability is not a restriction on the amount of the Note
of Borrower to Lender either In the aggregate or at any one time.

CONTINUING GUARANTY.  THIS is A "CONTINUING GUARANTY" UNDER WHICH GUARANTOR
AGREES TO GUARANTEE THE FULL AND PUNCTUAL PAYMENT, PERFORMANCE AND SATISFACTION
OF THE GUARANTOR'S SHARE OF THE INDEBTEDNESS OF BORROWER TO LENDER, NOW EXISTING
OR HEREAFTER ARISING OR ACQUIRED, ON A CONTINUING BASIS. ACCORDINGLY, ANY
PAYMENTS MADE ON
THE INDEBTEDNESS WILL NOT DISCHARGE OR DIMINISH GUARANTOR'S OBLIGATIONS AND
LIABILITY UNDER THIS GUARANTY FOR ANY REMAINING AND SUCCEEDING INDEBTEDNESS EVEN
WHEN ALL OR PART OF THE OUTSTANDING INDEBTEDNESS MAY BE A ZERO BALANCE FROM TIME
TO TIME.

DURATION OF GUARANTY.  This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all the Indebtedness incurred
or contracted before receipt by Lender of any notice of revocation shall have
been fully and finally paid and satisfied and all of Guarantor's other
obligations under this Guaranty shall have been performed in full, if Guarantor
elects to revoke this Guaranty, Guarantor may only do so in writing. Guarantor's
written notice of revocation must be mailed to Lender, by certified mall, at
Lender's address listed above or such other place as Lender may designate in
writing. Written revocation of this Guaranty will apply only to new Indebtedness
created after actual receipt by Lender of Guarantor's written revocation. For
this purpose and without limitation, the term "new Indebtedness" does not
include the Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later becomes
absolute, liquidated, determined or due. For this purpose and without
limitation, "new Indebtedness" does not include all or part of the Indebtedness
that is: incurred by Borrower prior to revocation; incurred under a commitment
that became binding before revocation; any renewals, extensions, substitutions,
and modifications of the Indebtedness, This Guaranty shall bind Guarantor's
estate as to the Indebtedness created both before and after Guarantor's death or
incapacity, regardless of Lender's actual notice of Guarantor's death. Subject
to the foregoing, Guarantor's executor or administrator or other legal
representative may terminate this Guaranty in the same manner in which Guarantor
might have terminated it and with the same effect. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation Lender
receives from anyone or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty. It is anticipated that fluctuations
may occur In the aggregate amount of the Indebtedness covered by this Guaranty,
and Guarantor specifically acknowledges and agrees that reductions in the amount
of the Indebtedness, even to zero dollars ($0.00), shall not constitute a
termination of this Guaranty. This Guaranty is binding upon Guarantor and
Guarantor's heirs, successors and assigns so long as any of the Guarantor's
Share of the Indebtedness remains unpaid and even though the Guarantor's Share
of the Indebtedness may from time to time be zero dollars ($0.00).

 
 

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GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, without notice or demand and without lessening
Guarantor's liability under this Guaranty, from time to time: (A) prior to
revocation as set forth above, to make one or more addtional secured or
unsecured loans to Borrower, to lease equipment or other goods to Borrower, or
otherwise to extend additional credit to Borrower: (B) to alter, compromise,
renew, extend, accelerate, or otherwise change one or more times the time for
payment or other terms of the Indebtedness or any part of the Indebtedness,
including increases and decreases of the rate of interest on the
Indebtedness: extensions may be repeated and may be for longer than the original
loan term: (C) to take and hold security for the payment of this Guaranty or the
Indebtedness, and exchange, enforce, waive, subordinate, fall or decide not to
perfect, and release any such security, with or without the substitution of new
collateral; (D) to release, substitute, agree not to sue, or deal with anyone or
more of Borrower's sureties, endorsers, or other guarantors on any terms or in
any manner Lender may choose: (E} to determine how, when and what application of
payments and credits shall be made on the Indebtedness; (F) to apply such
security and direct the order or manner of sale thereof, including without
limitation, any nonjudicial sale permitted by the terms of the controlling
security agreement or dead of trust, as Lender in Its discretion may determine:
(G) to sell, transfer, assign or grant participations in all or any par! of the
Indebtedness: and (H) to assign or transfer this Guaranty in whole or in part.

GUARANTOR'S REPRESENTATIONS AND WARRANTIES, Guarantor represents and warrants to
Lender that (A) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(B) this Guaranty is executed at Borrower's request and not at the request of
Lender; (C) Guarantor has full power, right and authority to enter Into this
Guaranty; (D) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor: (E) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein: (F) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present Guarantor's financial condition as of
the dates the financial Information is provided:  (G) no material adverse change
has occurred In Guarantor's financial condition since the date of the most
recent financial statements provided to Lender and no event has occurred which
may materially adversely affect Guarantor's financial condition; (H) no
litigation, claim, Investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(I) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (J) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition, Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
Information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
 
 
 

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  COMMERCIAL GUARANTY   Loan No: 43011870  (Continued) Page 2

================================================================================================================================================================================

GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (A) to continue lending money or to extend other
credit to Borrower; (B) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (e) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (D) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (E) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (F) to pursue any other
remedy within Lender's power; or (G) to commit any
act or omission of any kind, or at any time, with respect to any matter
whatsoever.
 
Guarantor also waives any and all rights or defenses based on suretyship or
impairment of collateral including, but not limited to, any rights or defenses
arising by reason of (A) any "one action" or "anti-deficiency" law or any other
law which may prevent Lender from bringing any action, including a claim for
deficiency, against Guarantor, before or after Lender's commencement or
completion of any foreclosure action, either judicially or by exercise of a
power of sale; (B) any election of remedies by Lender which destroys or
otherwise adversely affects Guarantor's subrogation rights or Guarantor's rights
to proceed against Borrower for reimbursement, including without limitation, any
loss of rights Guarantor may suffer by reason of any law limiting, qualifying,
or discharging the Indebtedness; (C) any disability or other defense of
Borrower, of any other guarantor, or of any other person, or by reason of the
cessation of Borrower's liability from any cause whatsoever, other than payment
In full In legal tender, of the Indebtedness; (D) any right to c1aim discharge
of the Indebtedness on the basis of unjustified impairment of any collateral for
the Indebtedness; (E) any statute of limitations, if at any time any action or
suit brought by Lender against Guarantor is commenced, there is outstanding
Indebtedness which is not barred by any applicable statute of limitations; or
(F) any defenses given to guarantors at law or in equity other than actual
payment and performance of the Indebtedness.  If payment is made by Borrower,
whether voluntarily or otherwise, or by any third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of the enforcement of this Guaranty.
 
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.

GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above Is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy. such
waiver shall be effective only to the extent permitted by law or public policy,

 
 

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RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Guarantor's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Guarantor holds
jointly with someone else and all accounts Guarantor may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law, Guarantor authorizes Lender, to the
extent permitted by applicable law, to hold these funds if there is a default,
and Lender may apply the funds in these accounts to pay what Guarantor owes
under the terms of this Guaranty.

SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
indebtedness, whether now existing or hereafter created, shall be superior to
any claim that Guarantor may now have or hereafter acquire against Borrower,
whether or not Borrower becomes insolvent. Guarantor hereby expressly
subordinates any claim Guarantor may have against Borrower, upon any account
whatsoever, to any claim that Lender may now or hereafter have against Borrower,
In the event of insolvency and consequent liquidation of the assets of Borrower,
through bankruptcy, by an assignment for the benefit of creditors, by voluntary
liquidation, or otherwise, the assets of Borrower applicable to the payment of
the claims of both Lender and Guarantor shall be paid to Lender and shall be
first applied by Lender to the Indebtedness. Guarantor does hereby assign to
Lender all claims which it may have or acquire against Borrower or against any
assignee or trustee in bankruptcy of Borrower; provided however, that such
assignment shall be effective only for the purpose of assuring to Lender full
payment in legal tender of the Indebtedness, If Lender so requests, any notes or
credit agreements now or hereafter evidencing any debts or obligations of
Borrower to Guarantor shall be marked with a legend that the same are subject to
this Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender is
hereby authorized, in the name of Guarantor, from time to time to file financing
statements and continuation statements and to execute documents and to take such
other actions as Lender deems necessary or appropriate to perfect, preserve and
enforce its rights under this Guaranty,

MISCELLANEOUS PROVISIONS, The following miscellaneous provisions are a part of
this Guaranty: Amendments, This Guaranty, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth In this Guaranty. No alteration of or amendment to this
Guaranty shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.

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

 
 

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Governing Law. This Guaranty will be governed by federal law applicable to
Lender and, to the extent not preempted by federal law, the laws of the State of
Colorado without regard to Its conflicts of law provisions.

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

Integration. Guarantor further agrees that Guarantor has read and fully
understands the terms of this Guaranty; Guarantor has had the opportunity to be
advised by Guarantor's attorney With respect to this Guaranty; the Guaranty
fully reflects Guarantor's Intentions and parol evidence is not required to
interpret the terms of this Guaranty. Guarantor hereby indemnifies and holds
Lender harmless from all losses, claims, damages, and costs (including Lender's
attorneys' fees) suffered or incurred by Lender as a result of any breach by
Guarantor of the warranties, representations and agreements of this paragraph.
 
Interpretation. In all cases where there is more than one Borrower or Guarantor,
then all words used in this Guaranty in the singular shall be deemed to have
been used in the plural where the context and construction so require; and where
there is more than one Borrower named in this Guaranty or when this Guaranty is
executed by more than one Guarantor, the words "Borrower" and "Guarantor"
respectively shall mean all and anyone or more of them, The words "Guarantor,"
"Borrower," and "Lender" include the heirs, successors, assigns, and transferees
of each of them. If a court finds that any provision of this Guaranty is not
valid or should not be enforced, that fact by itself will not mean that the rest
of this Guaranty will not be valid or enforced. Therefore, a court will enforce
the rest of the provisions of this Guaranty even if a provision of this Guaranty
may be found to be invalid or unenforceable. If anyone or more of Borrower or
Guarantor are corporations, partnerships, limited liability companies, or
similar entities, it is not necessary for Lender to inquire into the powers of
Borrower or Guarantor or of the officers, directors, partners, managers, or
other agents acting or purporting to act on their behalf, and any Indebtedness
made or created in reliance upon the professed exercise of such powers shall be
guaranteed under this Guaranty.

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

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  COMMERCIAL GUARANTY   Loan No: 43011870  (Continued) Page 3

================================================================================================================================================================================
No Waiver by Lender. Lender shall not be deemed to have waived any rights under
this Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender In exercising any right shall operate as
a waiver of such right or any other right. A waiver by Lender of a provision of
this Guaranty shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compl1ance with that provision or any other provision
of this Guaranty. No prior waiver by Lender, nor any course of dealing between
Lender and Guarantor, shall constitute a waiver of any of Lender's rights or of
any of Guarantor's obligations as to any future transactions. Whenever the
consent of Lender is required under this Guaranty, the granting of such consent
by Lender in any instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such consent may be
granted or withheld in the sale discretion of Lender.

Successors and Assigns. Subject to any limitations stated In this Guaranty on
transfer of Guarantor's Interest, this Guaranty shall be binding upon and inure
to the benefit of the parties, their successors and assigns.

Waive Jury. Lender and Guarantor hereby waive the right to any Jury trial in any
action, proceeding, or counterclaim brought by either Lender or Guarantor
against the other.

Liquidity Covenant. $1 million guarantor liquidity covenant to be verified
quarterly. Borrower will deliver, for Bank approval, quarterly financials (via
bank or brokerage statements, or any additional documentation selected at the
discretion of FWTB) no later than 30 days after quarter end.

Materiality Clause. Borrower's actions in the ordinary course of business that
do not have the effect of creating a material adverse change In the Borrower's
financial conditions are permitted, Irrespective of any restrictions contained
herein.
 
DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Guaranty. Unless specifically stated to the contrary,
all references to dollar amounts shall mean amounts in lawful money of the
United States of America. Words and terms used in the singular shall include the
plural, and the plural shall include the singular, as the context may require.
Words and terms not otherwise defined In this Guaranty shall have the meanings
attributed to such terms in the Uniform Commercial Code:

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

Guarantor. The word "Guarantor" means everyone signing this Guaranty, including
without limitation Jack J. Walker, and in each case, any signer's successors and
assigns.

Guarantor's Share of the Indebtedness. The words "Guarantor's Share of the
Indebtedness" mean Guarantor's indebtedness to Lender as more particularly
described in this Guaranty.

 
 

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Guaranty. The word "Guaranty" means this guaranty from Guarantor to Lender.

Indebtedness. The word "Indebtedness" means Borrower's indebtedness to Lender as
more particularly described in this Guaranty.

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

Note. The word "Note" means the promissory note dated May 21, 2010, in the
original principal amount of $1,000,000.00 from Borrower to Lender, together
with all renewals of, extensions of, modifications of, refinancings of,
consolidations of, and substitutions for the promissory note or agreement.

Related Documents, The words "Related Documents" mean ail promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
[aerogrow10-7img4.jpg]
 
 

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COMMERCIAL SECURITY AGREEMENT

Principal
$1.000.000.00
Loan Date
05-21-2010
Maturity
05-21-2014
Loan No
43011870
Call / Coll
Account
Officer
520
Initial
References in the boxes above are for Lender’s use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

Grantor:     Aerogrow International, Inc.  Lender:  FIRST WESTERN TRUST BANK
6075 Longbow Drive, Ste 200    Boulder Branch Boulder, CO 80301  1155 Canyon
Blvd.   Suite 300   Boulder, Co 80302   (303) 441-9400

================================================================================================================================================================================
THIS COMMERCIAL SECURITY AGREEMENT dated May 21, 2010, is made and executed
between Aerogrow International, Inc. ("Grantor") and FIRST WESTERN TRUST BANK
("Lender").

GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender
a security Interest in the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights stated in this Agreement with respect to the
Collateral, in addition to all other rights which Lender may have by law.

COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means
the following described property, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located, in which
Grantor is giving to Lender a security interest for the payment of the
Indebtedness and performance of all other obligations under the Note and this
Agreement:
 
All inventory, equipment, accounts (including but not limited to all
health-care-insurance receivables), chattel paper, instruments (including but
not limited to all promissory notes), letter-of-credit rights, letters of
credit, documents, deposit accounts, investment property, money, other rights to
payment and performance, and general intangibles (including but not limited to
all software and all payment Intangibles); all oil, gas and other minerals
before extraction; all oil, gas, other minerals and accounts constituting
as-extracted collateral; all fixtures; all timber to be cut; all attachments,
accessions, accessories, fittings, increases, tools, parts, repairs, supplies,
and commingled goods relating to the foregoing property, and all additions,
replacements of and substitutions for all or any part of the foregoing property;
all insurance refunds relating to the foregoing property; all good will relating
to the foregoing property; all records and data and embedded software relating
to the foregoing property, and all equipment, Inventory and software to utilize,
create, maintain and process any such records and data on electronic media; and
all supporting obligations relating to the foregoing property; all whether now
existing or hereafter arising, whether now owned or hereafter acquired or
whether now
or hereafter subject to any rights in the foregoing property; and all products
and proceeds (including but not limited to all insurance payments) of or
relating to the foregoing property.
 
 
 

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In addition, the word "Collateral" also includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:

(A) All accessions, attachments, accessories, tools, parts, supplies,
replacements of and additions to any of the collateral described herein, whether
added now or later.

(B) All products and produce of any of the property described in this Collateral
section.

(C) All accounts, general intangibles, instruments, rents, monies, payments, and
all other rights, arising out of a sale, lease, consignment or other disposition
of any of the property described in this Collateral section.

(D) All proceeds (including insurance proceeds) from the sale, destruction,
loss, or other disposition of any of the property described in this Collateral
section, and sums due from a third party who has damaged or destroyed the
Collateral or from that party's insurer, whether due to judgment, settlement or
other process.

(E) All records and data relating to any of the property described in this
Collateral section, whether in the form of a writing, photograph, microfilm,
microfiche, or electronic media, together with all of Grantor's right, title,
and interest in and to all computer software required to utilize, create,
maintain, and process any such records or data on electronic media.

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

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

Perfection of Security Interest. Grantor agrees to take whatever actions are
requested by Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender any and all
of the documents evidencing or constituting the Collateral, and Grantor will
note Lender's interest upon any and all chattel paper and instruments if not
delivered to Lender for possession by Lender. This is a continuing Security
Agreement and will continue in effect even though all or any part of the
Indebtedness is paid in full and even though for a period of time Grantor may
not be indebted to lender.

 
 

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Notices to Lender. Grantor will promptly notify Lender in writing at Lender's
address shown above (or such other addresses as Lender may designate from time
to time) prior to any (1) change in Grantor's name; (2) change in Grantor's
assumed business name(s); (3) change in the management of the Corporation
Grantor; (4) change in the authorized signer(s); (5) change in Grantor's
principal office address; (6) change in Grantor's state of organization; (7)
conversion of Grantor to a new or different type of business entity; or (8)
change in any other aspect of Grantor that directly or indirectly relates to any
agreements between Grantor and Lender. No change in Grantor's name or state of
organization will take effect until after Lender has received notice.

No Violation. The execution and delivery of this Agreement will not violate any
law or agreement governing Grantor or to which Grantor is a party, and its
certificate or articles of incorporation and bylaws do not prohibit any term or
condition of this Agreement.

Enforceability of Collateral. To the extent the Collateral consists of accounts,
chattel paper, or general intangibles, as defined by the Uniform Commercial
Code, the Collateral is enforceable in accordance with its terms, is genuine,
and fully complies with all applicable laws and regulations concerning form,
content and manner of preparation and execution, and all persons appearing to be
obligated on the Collateral have authority and capacity to contract and are in
fact obligated as they appear to be on the Collateral. At the time any account
becomes subject to a security interest in favor of Lender, the account shall be
a good and valid account representing an undisputed, bona fide indebtedness
incurred by the account debtor, for merchandise held subject to delivery
instructions or previously shipped or delivered pursuant to a contract of sale,
or for services previously performed by Grantor with or for the account debtor.
So long as this Agreement remains in effect, Grantor shall not, without Lender's
prior written consent, compromise, settle, adjust, or extend payment under or
with regard to any such Accounts. There shall be no setoffs or counterclaims
against any of the Collateral, and no agreement shall have been made under which
any deductions or discounts may be claimed concerning the Collateral except
those disclosed to Lender in writing.

Location of the Collateral. Except in the ordinary course of Grantor's business,
Grantor agrees to keep the Collateral (or to the extent the Collateral consists
of intangible property such as accounts or general intangibles, the records
concerning the Collateral) at Grantor's address shown above or at such other
locations as are acceptable to Lender. Upon Lender's request, Grantor will
deliver to Lender in form satisfactory to Lender a schedule of real properties
and Collateral locations relating to Grantor's operations, including without
limitation the following: (1) all real property Grantor owns or is purchasing;
(2) all real property Grantor is renting or leasing; (3) all storage facilities
Grantor owns, rents, leases, or uses; and (4) all other properties where
Collateral is or may be located.

Removal of the Collateral. Except in the ordinary course of Grantor's business,
including the sales of inventory, Grantor shall not remove the Collateral from
its existing location without Lender's prior written consent. To the extent that
the Collateral consists of vehicles, or other titled property, Grantor shall not
take or permit any action which would require application for certificates of
title for the vehicles outside the State of Colorado, without Lender's prior
written consent. Grantor shall, whenever requested, advise Lender of the exact
location of the Collateral.
 
 
 

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  COMMERCIAL SECURITY AGREEMENT   Loan No: 43011870  (Continued) Page 2

================================================================================================================================================================================
Transactions Involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, or as otherwise provided
for in this Agreement, Grantor shall not sell, offer to sell, or otherwise
transfer or dispose of the Collateral. While Grantor is not in default under
this Agreement, Grantor may sell inventory, but only in the ordinary course of
its business and only to buyers who qualify as a buyer in the ordinary course of
business. A sale in the ordinary course of Grantor's business does not include a
transfer in partial or total satisfaction of a debt or any bulk sale. Grantor
shall not pledge, mortgage, encumber or otherwise permit the Collateral to be
subject to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right to
the security interests granted under this Agreement. Unless waived by Lender,
all proceeds from any disposition of the Collateral (for whatever reason) shall
be held in trust for Lender and shall not be commingled with any other funds;
provided however, this requirement shall not constitute consent by Lender to any
sale or other disposition. Upon receipt, Grantor shall immediately deliver any
such proceeds to Lender.

Title. Grantor represents and warrants to Lender that Grantor holds good and
marketable title to the Collateral, free and clear of all liens and encumbrances
except for the lien of this Agreement. No financing statement covering any of
the Collateral is on file in any public office other than those which reflect
the security interest created by this Agreement or to which Lender has
specifically consented. Grantor shall defend Lender's rights in the Collateral
against the claims and demands of all other persons.

Repairs and Maintenance. Grantor agrees to keep and maintain, and to cause
others to keep and maintain, the Collateral in good order, repair and condition
at all times while this Agreement remains in effect. Grantor further agrees to
pay when due all claims for work done on, or services rendered or material
furnished in connection with the Collateral so that no lien or encumbrance may
ever attach to or be filed against the Collateral.

Inspection of Collateral. Lender and Lender's designated representatives and
agents shall have the right at all reasonable times to examine and inspect the
Collateral wherever located.

Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments
and liens upon the Collateral, its use or operation, upon this Agreement, upon
any promissory note or notes evidencing the Indebtedness, or upon any of the
other Related Documents. Grantor may withhold any such payment or may elect to
contest any lien if Grantor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as Lender's interest in
the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days, Grantor
shall deposit with Lender cash, a sufficient corporate surety bond or other
security satisfactory to Lender in an amount adequate to provide for the
discharge of the lien plus any interest, costs, attorneys' fees or other charges
that could accrue as a result of foreclosure or sale of the Collateral. In any
contest Grantor shall defend itself and Lender and shall satisfy any final
adverse judgment before enforcement against the Collateral. Grantor shall name
Lender as an additional obligee under any surety bond furnished in the contest
proceedings. Grantor further agrees to furnish Lender with evidence that such
taxes, assessments, and governmental and other charges have been paid in full
and in a timely manner. Grantor may withhold any such payment or may elect to
contest any lien if Grantor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as Lender's interest in
the Collateral is not jeopardized.

 
 

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Compliance with Governmental Requirements. Grantor shall comply promptly with
all laws, ordinances, rules and regulations of all governmental authorities, now
or hereafter in effect, applicable to the ownership, production, disposition, or
use of the Collateral, including all laws or regulations relating to the undue
erosion of highly-erodible land or relating to the conversion of wetlands for
the production of an agricultural product or commodity. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance during
any proceeding, including appropriate appeals, so long as Lender's interest in
the Collateral, in Lender's opinion, is not jeopardized.

Hazardous Substances. Grantor represents and warrants that the Collateral never
has been, and never will be so long as this Agreement remains a lien on the
Collateral, used in violation of any Environmental Laws or for the generation,
manufacture, storage, transportation, treatment, disposal, release or threatened
release of any Hazardous Substance. The representations and warranties contained
herein are based on Grantor's due diligence in investigating the Collateral for
Hazardous Substances. Grantor hereby (1) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes liable
for cleanup or other costs under any Environmental Laws, and (2) agrees to
indemnify, defend, and hold harmless Lender against any and all claims and
losses resulting from a breach of this provision of this Agreement. This
obligation to indemnify and defend shall survive the payment of the Indebtedness
and the satisfaction of this Agreement.

Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks
insurance, including without limitation fire, theft and liability coverage
together with such other insurance as Lender may require with respect to the
Collateral, in form, amounts, coverages and basis reasonably acceptable to
Lender and issued by a company or companies reasonably acceptable to Lender.
Grantor, upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at least
thirty (30) days' prior written notice to Lender and not including any
disclaimer of the insurer's liability for failure to give such a notice. Each
insurance policy also shall include an endorsement providing that coverage in
favor of Lender will not be impaired in any way by any act, omission or default
of Grantor or any other person; In connection with all policies covering assets
in which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require. If
Grantor at any time fails to obtain or maintain any insurance as required under
this Agreement, Lender may (but shall not be obligated to) obtain such insurance
as Lender deems appropriate, including if Lender so chooses "single interest
insurance," which will cover only Lender's interest in the Collateral.

Application of Insurance Proceeds. Grantor shall promptly notify Lender of any
loss or damage to the Collateral, whether or not such casualty or loss is
covered by insurance. Lender may make proof of loss if Grantor fails to do so
within fifteen (15) days of the casualty. All proceeds of any insurance on the
Collateral, including accrued proceeds thereon, shall be held by Lender as part
of the Collateral. If Lender consents to repair or replacement of the damaged or
destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay
or reimburse Grantor from the proceeds for the reasonable cost of repair or
restoration. If Lender does not consent to repair or replacement of the
Collateral, Lender shall retain a sufficient amount of the proceeds to pay all
of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which
have not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral shall
be used to prepay the Indebtedness.

 
 

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Insurance Reserves. Lender may require Grantor to maintain with Lender reserves
for payment of insurance premiums, which reserves shall be created by monthly
payments from Grantor of a sum estimated by Lender to be sufficient to produce,
at least fifteen (15) days before the premium due date, amounts at least equal
to the insurance premiums to be paid. If fifteen (15) days before payment is
due, the reserve funds are insufficient, Grantor shall upon demand pay any
deficiency to Lender. The reserve funds shall be held by Lender as a general
deposit and shall constitute a non-interest-bearing account which Lender may
satisfy by payment of the insurance premiums required to be paid by Grantor as
they become due. Lender does not hold the reserve funds in trust for Grantor.
and Lender is not the agent of Grantor for payment of the insurance premiums
required to be paid by Grantor. The responsibility for the payment of premiums
shall remain Grantor's sole responsibility.

Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as Lender
may reasonably request including the· following: (1) the name of the insurer;
(2) the risks insured; (3) the amount of the policy; (4) the property insured;
(5) the then current value on the basis of which insurance has been obtained and
the manner of determining that value; and (6) the expiration date of the policy.
In addition, Grantor shall upon request by Lender (however not more often than
annually) have an independent appraiser satisfactory to Lender determine, as
applicable, the cash value or replacement cost of the Collateral.

Financing· Statements. Grantor authorizes Lender to file a UCC financing
statement, or alternatively, a copy of this Agreement to perfect Lender's
security interest. At Lender's request, Grantor additionally agrees to sign all
other documents that are necessary to perfect, protect, and continue Lender's
security interest in the Property. Grantor will pay all filing fees, title
transfer fees, and other fees and costs involved unless prohibited by law or
unless Lender is required by law to pay such fees and costs. Grantor irrevocably
appoints Lender to execute documents necessary to transfer title if there is a
default. Lender may file a copy of this Agreement as a financing statement. If
Grantor changes Grantor's name or address, or the name or address of any person
granting a security interest under this Agreement changes, Grantor will promptly
notify the Lender of such change.
 
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
indebtedness.
 
 
 

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  COMMERCIAL SECURITY AGREEMENT   Loan No: 43011870  (Continued) Page 3

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

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

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

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

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

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

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

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

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

Insecurity. Lender in good faith believes itself insecure.

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

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Colorado Uniform Commercial Code. In addition and without
limitation, Lender may exercise anyone or more of the following rights and
remedies:

Accelerate Indebtedness, Lender may declare the entire Indebtedness, including
any prepayment penalty which Grantor would be required to pay, immediately due
and payable, without notice of any kind to Grantor.

Assemble Collateral. Lender may require Grantor to deliver to Lender all or any
portion of the Collateral and any and all certificates of title and other
documents relating to the Collateral. Lender may require Grantor to assemble the
Collateral and make it available to Lender at a place to be designated by
Lender. Lender also shall have full power to enter upon the property of Grantor
to take possession of and remove the Collateral. If the Collateral contains
other goods not covered by this Agreement at the time of repossession, Grantor
agrees Lender may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.

 
 

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

 
 
Sell the Collateral. Lender shall have full power to sell, lease, transfer, or
otherwise deal with the Collateral or proceeds thereof in Lender's own name or
that of Grantor. Lender may sell the Collateral at public auction or private
sale. Unless the Collateral threatens to decline speedily in value or is of a
type customarily sold on a recognized market, Lender will give Grantor, and
other persons as required by law, reasonable notice of the time and place of any
public sale, or the time after which any private sale or any other disposition
of the Collateral is to be made. However, no notice need be provided to any
person who, after Event of Default occurs, enters into and authenticates an
agreement waiving that person's right to notification of sale. The requirements
of reasonable notice shall be met if such notice is given at least ten (10) days
before the time of the sale or disposition, All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall be
payable on demand, with interest at the Note rate from date of expenditure until
repaid.
 
Appoint Receiver, Lender shall have the right to have a receiver appointed to
take possession of all or any part of the Collateral, with the power to protect
and preserve the Collateral, to operate the Collateral preceding foreclosure or
sale, and to collect the Rents from the Collateral and apply the proceeds, over
and above the cost of the receivership, against the Indebtedness. The receiver
may serve without bond if permitted by law. Lender's right to the appointment of
a receiver shall exist whether or not the apparent value of the Collateral
exceeds the Indebtedness by a substantial amount. Employment by Lender shall not
disqualify a person from serving as a receiver. Receiver may be appointed by a
court of competent jurisdiction upon ex parte application and without notice,
notice being expressly waived.

Collect Revenues, Apply Accounts. Lender, either itself or through a receiver,
may collect the payments, rents, income, and revenues from the Collateral.
Lender may at any time in Lender's discretion transfer any Collateral into
Lender's own name or that of Lender's nominee and receive the payments, rents,
income, and revenues therefrom and hold the same as security for the
Indebtedness or apply it to payment of the Indebtedness in such order of
preference as Lender may determine. Insofar as the Collateral consists of
accounts, general intangibles, insurance policies, instruments, chattel paper,
choses in action, or similar property, Lender may demand, collect, receipt for,
settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as
Lender may determine, whether or not Indebtedness or Collateral is then due. For
these purposes, Lender may, on behalf of and in the name of Grantor,  receive,
open and dispose of mail addressed to Grantor; change any address to which mail
and payments are to be sent; and endorse notes, checks, drafts, money orders,
documents of title, instruments and items pertaining to payment, shipment, or
storage of any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to Lender.

Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining on the
Indebtedness due to Lender after application of all amounts received from the
exercise of the rights provided in this Agreement. Grantor shall be liable for a
deficiency even if the transaction described in this subsection is a sale of
accounts or chattel paper.

Other Rights and Remedies, Lender shall have all the rights and remedies of a
secured creditor under the provisions of the Uniform Commercial Code, as may be
amended from time to time. In addition, Lender shall have and may exercise any
or all other rights and remedies it may have available at law, in equity, or
otherwise.

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

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  COMMERCIAL SECURITY AGREEMENT   Loan No: 43011870  (Continued) Page 4

================================================================================================================================================================================

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

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

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

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

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

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

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

 
 

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

 
 
Power of Attorney. Grantor hereby appoints Lender as Grantor's irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect, amend, or to continue the security interest granted in this Agreement
or to demand termination of filings of other secured parties. Lender may at any
time, and without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or of this
Agreement for use as a financing statement. Grantor will reimburse Lender for
all expenses for the perfection and the continuation of the perfection of
Lender's security interest in the Collateral.

Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be illegal, invalid, or unenforceable as to any circumstance, that
finding shall not make the offending provision illegal, invalid, or
unenforceable as to any other circumstance. If feasible, the offending provision
shall be considered modified so that it becomes legal, valid and enforceable. If
the offending provision cannot be so modified, it shall be considered deleted
from this Agreement. Unless otherwise required by law, the illegality,
invalidity, or unenforceability of any provision of this Agreement shall not
affect the legality, validity or enforceability of any other provision of this
Agreement.
 
Successors and Assigns. Subject to any limitations stated in this Agreement on
transfer of Grantor's interest, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns. If ownership of the
Collateral becomes vested in a person other than Grantor, Lender, without notice
to Grantor, may deal with Grantor's successors with reference to this Agreement
and the Indebtedness by way of forbearance or extension without releasing
Grantor from the obligations of this Agreement or liability under the
Indebtedness.

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

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

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

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

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

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

 
 

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

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

Default. The word "Default" means the Default set forth in this Agreement in the
section titled "Default".

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

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

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

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

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

Hazardous Substances. The words "Hazardous Substances" mean materials that,
because of their quantity, concentration or physical, chemical or infectious
characteristics, may cause or pose a present or potential hazard to human health
or the environment when improperly used, treated, stored, disposed of,
generated, manufactured, transported or otherwise handled. The words "Hazardous
Substances" are used in their very broadest sense and include without limitation
any and all hazardous or toxic substances, materials or waste as defined by or
listed under the Environmental Laws. The term "Hazardous Substances" also
includes, without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos.
 
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the
Note or Related Documents, including all principal and interest together with
all other indebtedness and costs and expenses for which Grantor is responsible
under this Agreement or under any of the Related Documents. Specifically,
without limitation, Indebtedness includes all amounts that may be indirectly
secured by the Cross-Collateralization provision of this Agreement.

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

 
 

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

 
 

  COMMERCIAL SECURITY AGREEMENT   Loan No: 43011870  (Continued) Page 5

================================================================================================================================================================================
 Note. The word "Note" means the Note executed by Aerogrow International, Inc.
in the principal amount of $1 ,000,000.00 dated May 21, 2010, together with all
renewals of, extensions of, modifications of, refinancings of, consolidations
of, and substitutions for the note or credit agreement.

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

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

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MAY 21, 2010.

GRANTOR:
[aerogrow10-7img3.jpg]

 
 
 

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

 
 
AGREEMENT TO PROVIDE INSURANCE
Principal
$1,000,000.00
Loan Date
05-21-2010
Maturity
05-21-2014
Loan No
43011870
Call / Coll
 
Account
Officer
520
Initials
References in the boxes above are for Lender’s use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

 

Grantor:     Aerogrow International, Inc.  Lender:  FIRST WESTERN TRUST BANK
6075 Longbow Drive, Ste 200    Boulder Branch Boulder, CO 80301  1155 Canyon
Blvd.   Suite 300   Boulder, Co 80302   (303) 441-9400

================================================================================================================================================================================
INSURANCE REQUIREMENTS. Grantor, Aerogrow  International, Inc. ("Grantor"),
understands that insurance coverage is required in connection with the extending
of a loan or the providing of other financial accommodations to Grantor by
Lender. These requirements are set forth in the security documents for the loan.
The following minimum insurance coverages must be provided on the following
described collateral  (the "Collateral"):

Collateral:             All Inventory, Equipment, Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full Insurable Value.
Basis: Replacement value.
Endorsements: Lender loss payable clause with stipulation that coverage will not
be cancelled or diminished without a minimum of 30 days prior written notice to
Lender.
Latest Delivery Date: By the loan closing date.

INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Lender.

FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, on the latest
delivery date stated above, proof of the required insurance as provided above,
with an effective date of May 21,2010, or earlier. Grantor acknowledges and
agrees that if Grantor fails to provide any required insurance or fails to
continue such insurance in force, Lender may do so at Grantor's expense as
provided in the applicable security document. The cost of any such insurance, at
the option of Lender, shall be added to the indebtedness as provided in
the security document. GRANTOR ACKNOWLEDGES THAT IF LENDER SO PURCHASES ANY SUCH
INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PRDTECTION AGAINST PHYSICAL DAMAGE
TO THE COLLATERAL, UP TO AN AMOUNT EQUAL TO THE LESSER OF (1) THE UNPAID BALANCE
OF THE DEBT, EXCLUDING ANY UNEARNED FINANCE CHARGES, OR (2) THE VALUE OF THE
COLLATERAL; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN
ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.

 
 

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

 
 
AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor
authorizes Lender to provide to any person (including any insurance agent or
company) all information Lender deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE
INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MAY 21, 2010.

[aerogrow10-7img5.jpg]
 
 
 

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                       FOR LENDER USE ONLY
                         INSURANCE VERIFICATION
DATE:_________________________                                                                                           PHONE
____________________________
__________
 
AGENTS NAME: _______________________________________________
 
AGENCY:_____________________________________________________
 
ADDRESS:
_______________________________________________________________________________________________
 
INSURANCE COMPANY:
_______________________________________________________________________
 
POLICY NUMBER:
____________________________________________________________________________  
 
EFFECTIVE DATES:
________________________________________________________________________________________
 
________________________________________________________________________________________________________
 
COMMENTS:
_____________________________________________________________________________________________
 
________________________________________________________________________________________________________
 
 

================================================================================================================================================================================     LASER
PRO Lending, Ver, 5.51.00.002 Copr. Hariend Financial Solution, Inc. 1997, 2010.
All rights Roserved, . CO C:\LASSERPRO\CFI\LPL\10.FC TR   -2658 PR-6

 
 

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

 
 
NOTICE OF INSURANCE REQUIREMENTS

Principal
Loan Date
05-21-2010
Maturity
Loan No
43011870
Call / Coll
Account
Officer
520
Initials
References in the boxes above are for Lender’s use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

 

Grantor:     Aerogrow International, Inc.  Lender:  FIRST WESTERN TRUST BANK
6075 Longbow Drive, Ste 200    Boulder Branch Boulder, CO 80301  1155 Canyon
Blvd.   Suite 300   Boulder, Co 80302   (303) 441-9400

================================================================================================================================================================================
 
ATTN:  Insurance Agent

                                                                                                           DATE
:     May 21, 2010

RE:      Policy Numbers(s):
             Insurance Companies/Company:

Dear Insurance Agent:
Grantor, Aerogrow International, Inc. ("Grantor") is obtaining a loan from FIRST
WESTERN TRUST BANK. Please send appropriate evidence of insurance to FIRST
WESTERN TRUST BANK, together with the requested endorsements, on the following
property, which Grantor is giving as security for the loan.

 
 

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

 
 
Collateral:             All Inventory, Equipment, Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full Insurable Value.
Basis: Replacement value.
Endorsements: Lender loss payable clause with stipulation that coverage will not
be cancelled or diminished without a minimum of 30 days prior written notice to
Lender.
Latest Delivery Date: By the loan closing date.
[aerogrow10-7img5.jpg] 
RETURN TO:

 
    Boulder Branch
 
   1155 Canyon Blvd.
 
   Suite 300
 
 
 
 
 
 
   
     
LASER PRO lending. Ver. 5.51.00.002 Copr. Harland Financial, Solutions, 1997.
2010. All Right Reserved. CO C:\LASERPRO\CFI\LPL\C10.FC TR·2636 PR-6
 

                                                 
 
 
 

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

 
 
AUTHORIZATION FOR PAYOFF
Principal
Loan Date
05-21-2010
Maturity
Loan No
43011870
Call / Coll
Account
Officer
520
Initials
References in the boxes above are for Lender’s use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

 

Borrower:     Aerogrow International, Inc.  Lender:  FIRST WESTERN TRUST BANK
6075 Longbow Drive, Ste 200    Boulder Branch Boulder, CO 80301  1155 Canyon
Blvd.   Suite 300   Boulder, Co 80302   (303) 441-9400

 
TO:

 
   FCC,   LLC dba First Capital
   3520 NW 58th St.
   Oklahoma City, OK 73112
 
 
 

                                                                                                                                 DATE:
05-21-2010
RE:   PAYOFF OF ACCOUNT NO. 153910203501

I HEREBY AUTHORIZE you to accept from FIRST WESTERN TRUST BANK a payoff of
Account Number 153910203501. The payoff amount is $673,599.53. This payoff is
good until May 24, 2010. You are instructed upon receipt of the above amount to
surrender to FIRST WESTERN TRUST BANK (A) any documents of title, properly
endorsed and released, (6) any security agreement releases or terminations, and
(C) the promissory note or credit agreement marked "cancelled" or "paid".

If you have any questions concerning this Payoff Authorization, please contact
me or FIRST WESTERN TRUST BANK at the address shown above.
[aerogrow10-7img6.jpg]
 
 

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================================================================================================================================================================================
RECEIPT OF AUTHORIZATION FOR PAYOFF
 
Receipt is hereby acknowledged of the above Authorization for Payoff
on_________________________ , 20 ____________________.

¨  
We are enclosing all requested documents.

¨  
Please contact us concerning the requested documents.

¨  
Other:  ________________________________________                                    FCC,
LLC dba First Capital

_________________________________________________
          By: _____________________________________
              (Authorized Signer)

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

 
 

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AUTHORIZATION FOR PAYOFF
 
Principal
Loan Date
05-21-2010
Maturity
Loan No
43011870
Call / Coll
Account
Officer
520
Initials
References in the boxes above are for Lender’s use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

 

Borrower:     Aerogrow International, Inc.  Lender:  FIRST WESTERN TRUST BANK
6075 Longbow Drive, Ste 200    Boulder Branch Boulder, CO 80301  1155 Canyon
Blvd.   Suite 300   Boulder, Co 80302   (303) 441-9400

TO                                             DATE: 05-21-2010
 

 
      
   FCC, LLC dba First Capital
   3520 NW 58th St.
   Oklahoma City, OK 73112
 
 
    

 
                                                                                                                                                
RE: PAYOFF OF ACCOUNT NO. 153910203501

I HEREBY AUTHORIZE you to accept from FIRST WESTERN TRUST BANK a payoff of
Account Number 153910203501. The payoff amount is $673,599.53. This payoff is
good until May 24, 2010. You are instructed upon receipt of the above amount to
surrender to FIRST WESTERN TRUST BANK (A) any documents of title, properly
endorsed and released, (8) any security agreement releases or terminations, and
(C) the promissory note or credit agreement marked "cancelled" or "paid".

If you have any questions concerning this Payoff Authorization, please contact
me or FIRST WESTERN TRUST BANK at the address shown above.
[aerogrow10-7img6.jpg]
 
 
 

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================================================================================================================================================================================
RECEIPT OF AUTHORIZATION FOR PAYOFF
 
Receipt Is hereby acknowledged of the above Authorization for Payoff on
______________________________, 20 _________________

¨  
We are enclosing all requested documents.

¨  
Please contact us concerning the requested documents.

¨  
Other:  ________________________________________                                    FCC,
LLC dba First Capital

_________________________________________________
          By: _____________________________________
              (Authorized Signer)

THIS COPY TO BE RETURNED TO LENDER
 
LASER PRO lending. Ver. 5.51.00.002 Copr. Harland Financial, Solutions, 1997.
2010. All Right Reserved. CO C:\I.ASERPRO\CFI\LPL\C10.FC TR·2636 PR-6
 
RETURN TO:
 

 
   FIRST WESTERN TRUST BANK
   Boulder Branch
   1155 Canyon Blvd.
   Suite 300
   Boulder, CO 80302
 
 
 

 
 
 

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

 
 
AUTHORIZATION FOR PAYOFF
 
Principal
Loan Date
05-21-2010
Maturity
Loan No
43011870
Call / Coll
Account
Officer
520
Initials
References in the boxes above are for Lender’s use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

Borrower:     Aerogrow International, Inc.  Lender:  FIRST WESTERN TRUST BANK
6075 Longbow Drive, Ste 200    Boulder Branch Boulder, CO 80301  1155 Canyon
Blvd.   Suite 300   Boulder, Co 80302   (303) 441-9400

 
 
TO                                                                                                                      DATE:  05-21-2010
 

 
    FNB
 
 
 
 

RE:                 PAYOFF OF ACCOUNT NO.

I HEREBY AUTHORIZE you to accept from FIRST WESTERN TRUST BANK a payoff of
Account Number _________.  The payoff amount is $150,000.00.  $161,617.23. This
payoff is good until May 19, 2010. You are instructed upon receipt of the above
amount to surrender to FIRST WESTERN WO TRUST BANK  (A)  any documents of
title,  property endorsed and released, (B) any security agreement releases or
terminations, and (C) the promissory note or credit agreement marked "cancelled"
or "paid".
 
If you have any questions concerning this Payoff Authorization, please contact
me or FIRST WESTERN TRUST BANK at the address shown above.

[aerogrow10-7img6.jpg]
 
 

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================================================================================================================================================================================
RECEIPT OF AUTHORIZATION FOR PAYOFF

Receipt Is hereby acknowledged of the above Authorization for Payoff on
______________________________, 20 _________________

¨  
We are enclosing all requested documents.

¨  
Please contact us concerning the requested documents.

¨  
Other:  ________________________________________                                 
FNB

_________________________________________________
          By: _____________________________________
              (Authorized Signer)
 

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

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

 
AUTHORIZATION FOR PAYOFF

Principal
Loan Date
05-21-2010
Maturity
Loan No
43011870
Call / Coll
Account
Officer
520
Initials
References in the boxes above are for Lender’s use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

Borrower:     Aerogrow International, Inc.  Lender:  FIRST WESTERN TRUST BANK
6075 Longbow Drive, Ste 200    Boulder Branch Boulder, CO 80301  1155 Canyon
Blvd.   Suite 300   Boulder, Co 80302   (303) 441-9400

 
TO                                                                                                                      DATE:  05-21-2010
 

   
    FNB
 
 
 
 
 

 
RE: PAYOFF OF ACCOUNT NO.

I HEREBY AUTHORIZE you to accept from FIRST WESTERN TRUST BANK a payoff of
Account Number ___________. The payoff amount is  $150,000 . $164,647.23.  This
payoff is good until May 19, 2010. You are instructed upon receipt of the above
amount to surrender to FIRST WESTERN WO TRUST BANK (A) any documents of title,
properly endorsed and released, (B) any security agreement releases or
terminations, and (C) the  promissory note or credit agreement marked
"cancelled" or "paid".

If you have any questions concerning this Payoff Authorization, please contact
me or FIRST WESTERN TRUST BANK at the address shown above.
[aerogrow10-7img7.jpg]
 
 

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

 

================================================================================================================================================================================
RECEIPT OF AUTHORIZATION FOR PAYOFF

Receipt Is hereby acknowledged of the above Authorization for Payoff on
______________________________, 20 _________________

¨  
We are enclosing all requested documents.

¨  
Please contact us concerning the requested documents.

¨  
Other:  ________________________________________                                 
FNB

_________________________________________________
          By: _____________________________________
              (Authorized Signer)

                                    THIS COPY TO BE RETURNED TO LENDER
 
LASER PRO lending. Ver. 5.51.00.002 Copr. Harland Financial, Solutions, 1997.
2010. All Right Reserved. CO C:\LASERPRO\CFI\LPL\C10.FC TR·2636 PR-6
 
RETURN TO:
  
   FIRST WESTERN TRUST BANK
   Boulder Branch
   1155 Canyon Blvd.
   Suite 300
   Boulder, CO 80302
 
 

 
 

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

Borrower: Aerogrow International,
Inc.                                                  Lender:FIRST WESTERN TRUST
BANK
6075 Longbow Drive, Ste
200                                                                      Boulder
Branch
Boulder, CO
80301                                                                                         1155
Canyon Blvd.
                         Suite 300
                            Boulder, Co 80302
                            (303) 441-9400
================================================================================================================================================================================
LOAN TYPE. This is a Fixed Rate (2.000%) Nondisclosable Revolving Line of Credit
Loan to a Corporation for $2,000,000.00 due on May 21, 2011.

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

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

x  
Business (Including Real Estate Investment).

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

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

                                       Amount paid to Borrower
directly:                                                 $164,753.24
                                                   $164,753.24 Deposited to
Checking Account # 2069030

                                       Amount paid to others on Borrower's
behalf:                      $835,246.76
                                                         $161,647.23 to FNB
                                                        $673,599.53 to First
Capital                                             ________________

                                                      Note
Principal:                                                                           $1,000,000.00

CHARGES PAID IN CASH.    Borrower has paid or will pay in cash as agreed the
following charges:
 
                                            Prepaid Finance Charges Paid In
Cash:                                              $12,500.00
                                                 $12,500.00 Loan Origination Fee
(%)
                                           Other Charges Paid In
Cash:                 $54.00
                                                     $54.00 UCC Filing/
Termination Fees                     ____________________________

 
                                             Total Charges Paid in
Cash:              $12,554.00

 
 

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

[aerogrow10-7img6.jpg]
 
 

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