Document:

ex10-2.htm

    Exhibit
10.2

    
      BUSINESS LOAN AGREEMENT

       

      
         

        
          
            
              
                	
                        Principal

                      	
                        Loan
      Date

                      	
                        Maturity

                      	
                        Loan
      No

                      	
                        Call/Coll

                      	
                        Account

                      	
                        Officer

                      	
                        Initials

                      	 
      
	
                        $1,000,000.00

                      	
                        05-16-2008

                      	
                        05-16-2009

                      	
                        42431

                      	 
      	 
      	
                        10270

                      	 
      	 
      
	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.

                      JACK
      J. WALKER

                      6075
      LONGBOW DRIVE SUITE 200

                      BOULDER,
      CO 80301

                       

                    	
                       
      

                    	
                      Lender:

                    	
                      First
      National Bank Canyon Branch

                      11
      55 Canyon Blvd.

                      Boulder,
      CO 80302-51 21

                       

                       

                    
	
                    

            

          

        

        

         

      

       

      THIS BUSINESS LOAN AGREEMENT
dated May 16, 2008, is
made and executed between AEROGROW INTERNATIONAL, INC.;
and JACK J. WALKER
("Borrower") and First National Bank ("Lender") on the following terms
and conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans or other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. Borrower understands and agrees that: (A)
in granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements as set forth in this Agreement; (B)
the granting. renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (C) all such Loans shall be
and remain subject to the terms and conditions of this Agreement.

      

      TERM. This Agreement shall be
effective as of May 16, 2008, 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 such time as the parties may agree in writing to terminate
this Agreement.

      

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

      

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

      

      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.

      

      MULTIPLE BORROWERS. This
Agreement has been executed by multiple obligors who are referred to in this
Agreement individually, collectively and interchangeably as "Borrower." Unless
specifically stated to the contrary, the word "Borrower" as used in this
Agreement, including without limitation all representations, warranties and
covenants, shall include all Borrowers. Borrower understands and agrees that,
with or without notice to any one Borrower, Lender may (A) make one or more
additional secured or unsecured loans or otherwise extend additional credit with
respect to any other Borrower; (B) with respect to any other Borrower alter,
compromise, renew, extend, accelerate, or otherwise change one or more times the
time for payment or other terms of any indebtedness, including increases and
decreases of the rate of interest on the indebtedness; (C) exchange, enforce,
waive, subordinate, fail or decide not to perfect, and release any security,
with or without the substitution of new collateral; (Dl release, substitute,
agree not to sue, or deal with any one or more of Borrower's or any other
Borrower's sureties, endorsers, or other guarantors on any terms or in any
manner Lender may choose; (E) determine how, when and what application of
payments and credits shall be made on any indebtedness; (F) apply such security and
direct the order or manner of sale of any Collateral, including without
limitation, any non-judicial sale permitted by the terms of the controlling
security agreement or deed of trust, as Lender in its discretion may determine;
(GI sell, transfer, assign or grant participations in all or any part of the
Loan; (HI exercise or
refrain from exercising any rights against Borrower or others, or otherwise act
or refrain from acting; (I) settle or compromise any indebtedness; and (J)
subordinate the payment of all or any part of any of Borrower's indebtedness to
Lender to the payment of any liabilities which may be due Lender or others.

       

      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.
AEROGROW INTERNATIONAL,
INC.  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. AEROGROW INTERNATIONAL, INC.
is duly authorized to transact business in all other states in which
AEROGROW INTERNATIONAL,
INC. is doing business, having obtained all necessary filings,
governmental licenses and approvals for each state in which AEROGROW
INTERNATIONAL, INC, is doing business. Specifically, AEROGROW INTERNATIONAL, INC.
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. AEROGROW INTERNATIONAL, INC.
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. AEROGROW INTERNATIONAL, INC.
maintains an office at 6075 LONGBOW DRIVE SUITE 200, BOULDER, CO 80301. Unless
AEROGROW INTERNATIONAL,
INC. has designated otherwise in writing, the principal office is the
office at which AEROGROW
INTERNATIONAL, INC. keeps its books and records including its records
concerning the Collateral. AEROGROW INTERNATIONAL, INC.
will notify Lender prior to any change in the location of AEROGROW INTERNATIONAL, INC.'s
state of organization or any change in AEROGROW INTERNATIONAL, INC.'s
name. AEROGROW INTERNATIONAL,
INC. 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 AEROGROW INTERNATIONAL, INC.
and AEROGROW INTERNATIONAL,
INC.'s business activities.

       

      JACK J. WALKER maintains an
office at 1270 OLD TALE ROAD,
BOULDER, CO 80303. Unless JACK J. WALKER has designated
otherwise in writing, the principal office is the office at which JACK J. WALKER keeps its books
and records including its records concerning the Collateral. JACK J. WALKER will notify
Lender prior to any change in the location of JACK J. WALKER's principal office
address or any change in JACK J. WALKER's name. JACK J. WALKER shall do all
things necessary to comply with all regulations, rules, ordinances, statutes,
orders and decrees of any governmental or quasi-governmental authority or court
applicable to JACK J. WALKER
and JACK J. WALKER'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 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,

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
 

      BUSINESS LOAN AGREEMENT Loan No:
42431 (Continued) Page 2 

       

      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.

      

      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 lnterests 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 lnterests
and rights in and to such Collateral.

      

      Binding
Effect. This Agreement, the Note, all Security agreements(i f 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 ( I ) 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:

      

      Additional
Requirements. PLEASE SEE
"SCHEDULE A", WHICH IS AN INTEGRAL PART OF THlS DOCUMENT AND IS INCORPORATED IN
ITS ENTIRETY BY THlS REFERENCE.

      

      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. 

       

      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 ten (10) 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. 

       

      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.

      

      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

      

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      

      BUSINESS
LOAN AGREEMENT Loan No: 42431 (Continued) Page 3

      

      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.

      

      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 lndebtedness 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:

      

      lndebtedness
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.
Borrower will not enter into any agreement containing any provisions which would
be violated or breached by the performance of Borrower's obligations under this
Agreement or in connection herewith.

      

      CESSATION OF ADVANCES. If
Lender has made any commitment to make any Loan to Borrower, whether under this
Agreement or under any other agreement, Lender shall have no obligation to make
Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is
in default under the terms of this Agreement or any of the Related Documents or
any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower
or any Guarantor dies, becomes incompetent or becomes insolvent, files a
petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C)
there occurs a material adverse change in Borrower's financial condition, in the
financial condition of any Guarantor, or in the value of any Collateral securing
any Loan; or (Dl 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 lndebtedness 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 fails to make any payment when due under the
Loan.

      

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

      

      Default
in Favor of Third Parties. Borrower or any Grantor defaults under any loan,
extension of credit, security agreement, purchase or sales agreement, or any
other agreement, in favor of any other creditor or person that may materially
affect any of Borrower's or any Grantor's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.

       

      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 eases to be in
full force and effect (including failure of any collateral document to create a
valid and perfected security interest or lien) at any time and for any
reason.

      

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

      

      Events
Affecting Guarantor. Any of the preceding events occurs with respect to any
Guarantor of any of the lndebtedness 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.

      

      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 lndebtedness 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

       

      
 

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      Loan No: 42431 BUSINESS LOAN
AGREEMENT (Continued) Page 4 

       

      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.

      

      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 any one or more purchasers,
or potential purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy Borrower may have with respect to such matters.
Borrower additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such participation
interests. Borrower also agrees that the purchasers of any such participation
interests will be considered as the absolute owners of such interests in the
Loan and will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower further
waives all rights of offset or counterclaim that it may have now or later
against Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loan irrespective of the failure or insolvency
of any holder of any interest in the Loan. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have against
Lender.

      

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

      

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

      

      Joint and
Several Liability. All obligations of Borrower under this Agreement shall be
joint and several, and all references to Borrower shall mean each and every
Borrower. This means that each Borrower signing below is responsible for all
obligations in this Agreement. Where any one or more of the parties is a
corporation, partnership, limited liability company or similar entity, it is not
necessary for Lender to inquire into the powers of any of the officers,
directors, partners, members, or other agents acting or purporting to act on the
entity's behalf, and any obligations made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this
Agreement.

      

      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 its Agreement
to be illegal, invalid, or unenforceable as to any person or circumstance, that
finding shall not make the offending provision illegal, invalid, or
unenforceable as to any other person or 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. All covenants and agreements by or on behalf of Borrower contained
in this Agreement or any Related Documents shall bind Borrower's successors and
assigns and shall inure to the benefit of Lender and its successors and assigns.
Borrower shall not, however, have the right to assign Borrower's rights under
this Agreement or any interest therein, without the prior written consent of
Lender. ,

      

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

      

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

      

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

      

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

      

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

      

      Agreement.
The word "Agreement" means this Business Loan Agreement, as this Business Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Business Loan Agreement from time to
time. Borrower. The word "Borrower" means AEROGROW INTERNATIONAL, INC.;
and JACK J. WALKER 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 an'd 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

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
 

      BUSINESS
LOAN AGREEMENT Loan No: 42431 (Continued) Page 5

      

      Reauthorization
Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws,
rules, or regulations adopted pursuant thereto.

      

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

      

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

      

      Grantor.
The word "Grantor" means each and all of the persons or entities granting a
Security Interest in any Collateral for the Loan, including without limitation
all Borrowers granting such a Securi.ty 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 "lndebtedness" 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 National 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.;
and JACK J. WALKER in
the principal amount of $1,000,000.00 dated May 16, 2008, 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 lndebtedness 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 "lndebtedness and Liens"; (5) liens and security interests
which, as of the date of this Agreement, have been disclosed to and approved by
the Lender in writing; and (6) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.

      

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

      

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

      

      Security
Interest. The words "Security Interest" mean, without limitation, any and all
types of collateral security, present and future, whether in the form of a lien,
charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge,
crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt, lien or title
retention contract, lease or consignment intended as a security device, or any
other security or lien interest whatsoever whether created by law, contract, or
otherwise.

       

      BORROWER
ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THlS BUSINESS LOAN AGREEMENT AND
BORROWER AGREES TO ITS TERMS. THlS BUSINESS LOAN AGREEMENT IS DATED MAY 16,2008.
BORROWER:

      

      AEROGROW INTERNATIONAL, INC.

      By:                                                                          

      JERVIS B. PERKINS, President
of AEROGROW INTERNATIONAL,
INC. 

       

      X                                                            

      JACK J.
WALKER, Individually 

       

      LENDER: 

       

      FIRST NATIONAL BANK

       

      By,:-
Authorized Signer 

       

       

       

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ADDENDUM

    to

    BUSINESS
LOAN AGREEMENT (ASSET BASED)

    between

    AEROGROW
INTERNATIONAL, INC. and JACK J. WALKER (collectively the “Borrower”)

    and

    FIRST
NATIONAL BANK (“Lender”)

    Dated May
19, 2008

    

    The
provisions of this Addendum shall be considered additional provisions to that
certain Business Loan Agreement (Asset Based) (the “Agreement”)
of even date herewith and incorporated therein.  To the extent that
the provisions of this Addendum conflict with the provisions of the Agreement,
the provisions of this Addendum shall govern.  Capitalized terms not
defined herein shall have the meanings ascribed to them in the
Agreement.

    

    1.     The
Section entitled “MULTIPLE BORROWERS” is amended by the addition of a new last
sentence which shall read in its entirety as follows:

    

            “The
Bank shall provide prior written notice to Jack J. Walker of any amendment to
the Agreement.”

    

    2.     The
section of the Agreement entitled “Litigation and Claims” is revised to add a
new last sentence to that section that shall read in its entirety as
follows:

    

    The
Lender acknowledges that the facts and circumstances of the VitaCost litigation
have been disclosed to it.

    

    3.  
  The subsection of the Agreement entitled “Inspection” under the
section entitled “AFFIRMATIVE COVENANTS” is amended and restated to read in its
entirety as follows:

    

    Upon
prior written notice to Borrower, 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.

    

    4.     The
subsection of the Agreement entitled “Indebtedness and Liens”  under
the section entitled “NEGATIVE COVENANTS” is restated in its entirety to read as
follows:

    

    Indebtedness and
Liens.  Except for (1) (a) trade debt incurred in the normal
course of business, (b) indebtedness to Lender contemplated by this Agreement,
(c) capital leases in an amount not to exceed $500,000.00 and (d) capital
expenditures of not more than $500,000.00 during any fiscal year (excluding
tooling in the normal course of business), create, incur or assume indebtedness
for borrowed money, (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.

    

    
      5.    
The
Negative Covenants shall not apply to Jack J. Walker but shall apply only to
Aerogrow International, Inc.

    

    

    6.     The
subsection of the Agreement entitled “Loans, Acquisitions and Guaranties” is
restated in its entirety to read as follows:

    

    Loans,
Acquisitions and Guaranties.  (1) Loan, invest in or advance money or
assets to any other person, enterprise or entity except advances to employees of
Borrower not to exceed an aggregate amount of $50,000.00 at any one time for all
employees, (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.

    

    
      7.    
The
section of the Agreement entitled “Default” is restated in its entirety to read
as follows:

    

    

    
      	
               
      

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

            

    

    

    
      	
               
      

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

            

    

    

    
      	
               
      

            	
              Other
      Defaults.  Borrower fails to comply with or to perform
      any other term, obligation, covenant or condition contained in this
      Agreement or in any of the Related Documents or to comply with or to
      perform any term, obligation, covenant or condition contained in any other
      agreement between Lender and Borrower and such failure to comply of
      perform remains uncured for a period of three (3)
  days.

            

    

    

    
      	
               
      

            	
              Default in Favor of
      Third Parties.  Borrower or any Guarantor defaults under
      any loan, extension of credit, security agreement, purchase or sales
      agreement, or any other agreement, in favor of any other creditor or
      person that may materially affect any of Borrower’s or any Guarantor’s
      property or Borrower’s or any Guarantor’s ability to repay the Loans or
      perform their respective obligations under this Agreement or any of the
      Related Documents and such default remains uncured for a period of three
      (3) days.

            

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    
      	
               
      

            	
              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 and such proceeding
      under any bankruptcy or insolvency laws remains unstayed for a period of
      forty five (45) days.

            

    

    

    
      	
               
      

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

            

    

    

    
      	
               
      

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

            

    

    

    
      	
               
      

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

            

    

    

    
      	
               
      

            	
              Change in
      Ownership.  Any change in ownership of fifty percent
      (50%) 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 or payment or
      performance of the Loan is impaired and such condition remains uncured for
      a period of three (3) days after notice from the
  Borrower.

            

    

    

    
      	
               
      

            	
              Insecurity.  Lender
      in good faith believes itself insecure and such belief remains uncured for
      a period of three (3) days after notice to the
  Borrower.

            

    

    

    

    All other
terms and conditions of the Agreement remain the same.

    

    In
Witness Whereof, Borrower and Lender agree to and acknowledge the terms of this
Addendum.

    

    

    BORROWER:                                                                           LENDER:

    

    AEROGROW
INTERNATIONAL, INC.

    

    

    

    By:  ____________________________                          By:  ________________________

    Jervis B.
Perkins                                                               Zan
M. Powell

    President                                                                           Vice
President

    

    

    ____________________________________________

         JACK
J. WALKER, individuallyex10-3.htm

     

    Exhibit
10.3

     

    
       

      PROMISSORY
NOTE

       

      
        
          
            
              	
                      Principal

                    	
                      Loan
      Date

                    	
                      Maturity

                    	
                      Loan
      No

                    	
                      Call/Coll

                    	
                      Account

                    	
                      Officer

                    	
                      Initials

                    	 
      
	
                      $1,000,000.00

                    	
                      05-16-2008

                    	
                      05-16-2009

                    	
                      42431

                    	 
      	 
      	
                      10270

                    	 
      	 
      
	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.

                    JACK
      J. WALKER

                    6075
      LONGBOW DRIVE SUITE 200

                    BOULDER,
      CO 80301

                     

                  	
                     
      

                  	
                    Lender:

                  	
                    First
      National Bank Canyon Branch

                    11
      55 Canyon Blvd.

                    Boulder,
      CO 80302-51 21

                     

                     

                  
	
                  

          

        

      

      

       

      

      Principal
Amount: $1,000,000.00
Initial Rate: 5.500%
Date of Note: May 16,
2008

      

      PROMISE TO PAY. AEROGROW INTERNATIONAL, INC.;
and JACK J. WALKER
("Borrower") jointly and severally promise to pay to First National Bank
("Lender"), or order, in lawful money of the United States of America, the
principal amount of One Million & 001100 Dollars ($1,000,000.00) or so much
as may be outstanding, together with interest on the unpaid outstanding
principal balance of each advance. Interest shall be calculated from the date of
each advance until repayment of each advance.

      

      PAYMENT. Borrower will pay
this loan in one payment of all outstanding principal plus all accrued unpaid
interest on May 16, 2009.
In addition, Borrower will pay regular monthly payments of all accrued unpaid
interest due as of each payment date, beginning June 16, 2008, with all
subsequent interest payments to be due on the same day of each month after that.
Unless otherwise agreed or required by applicable law, payments will be applied
to First to Accrued Interest, Then to Principal, Then to Fees, Then to Late
Charges, Then to Collections Costs. The annual interest rate for this Note is
computed on a 3651360 basis; that is, by applying the ratio of the annual
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. Borrower will pay Lender at Lender's address shown above or at such
other place as Lender may designate in writing.

      

      VARIABLE INTEREST RATE. The
interest rate on this Note is subject to change from time to time based on
changes in an independent index which is the base rate on corporate loans posted
by at least 75% of the nation's 30 largest banks known as the Wall Street
Journal Prime Rate (the "lndex") (the "lndex"). The lndex is not necessarily the
lowest rate charged by Lender on its loans. If the lndex becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notifying Borrower. Lender will tell Borrower the current lndex rate upon
Borrower's request. The interest rate change will not occur more often than each
day. Borrower understands that Lender may make loans based on other rates as
well. The lndex currently is 5.000% per annum. The interest rate to be applied
to the unpaid principal balance during this Note will be at a rate of 0.500
percentage points over the Index, resulting in an initial rate of 5.500% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.

      

      PREPAYMENT; MINIMUM INTEREST
CHARGE. In any event, even upon full prepayment of this Note, Borrower
understands that Lender is entitled to a minimum interest charge of $250.00.
Other than Borrower's obligation to pay any minimum interest charge, Borrower
may pay without penalty all or a portion of the amount owed earlier than it is
due. Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued unpaid
interest. Rather, early payments will reduce the principal balance due. Borrower
agrees not to send Lender payments marked "paid in full", "without recourse", or
similar language. If Borrower sends such a payment, Lender may accept it without
losing any of Lender's rights under this Note, and Borrower will remain
obligated to pay any further amount owed to Lender. All written communications
concerning disputed amounts, including any check or other payment instrument
that indicates that the payment constitutes "payment in full" of the amount owed
or that is tendered with other conditions or limitations or as full satisfaction
of a disputed amount must be mailed or delivered to: First National Bank, Loan
Operations, P.O. Box 578 Fort Collins, CO 80522. 

       

      INTEREST
AFTER DEFAULT. Upon default, including failure to pay upon final maturity, at
Lender's option, and if permitted by applicable law, Lender may add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate provided in this Note (including any increased rate). Upon
default, the interest rate on this Note shall be increased by adding a 4.000
percentage point margin ("Default Rate Margin"). The Default Rate Margin shall
also apply to each succeeding interest rate change that would have applied had
there been no default. 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.

       

      Default
in Favor of Third Parties. Borrower or any Grantor defaults under any loan,
extension of credit, security agreement, purchase or sales agreement, or any
other agreement, in favor of any other creditor or person that may materially
affect any of Borrower's property or Borrower's ability to repay this Note or
perform Borrower's obligations under this Note or any of the related
documents.

      

      False
Statements. Any warranty, representation or statement made or furnished to
Lender by Borrower or on Borrower's behalf, or made by Guarantor, or any other
guarantor, endorser, surety, or accommodation party, under this Note or the
related documents in connection with the obtaining of the loan evidenced by this
Note or any security document directly or indirectly securing repayment of this
Note is false or misleading in any material respect, either now or at the time
made or furnished or becomes false or misleading at any time thereafter.

       

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

      

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

      

      Execution;
Attachment. Any execution or attachment is levied against the Collateral, and
such execution or attachment is not set aside, discharged or stayed within
thirty (30) days after the same is levied.

      

      Change in
Zoning or Public Restriction. Any change in any zoning ordinance or regulation
or any other public restriction is enacted, adopted or implemented, that limits
or defines the uses which may be made of the Collateral such that the present or
intended use of the Collateral, as specified in the related documents, would be
in violation of such zoning ordinance or regulation or public restriction, as
changed. 

       

      Default
Under Other Lien Documents. A default occurs under any other mortgage, deed of
trust or security agreement covering all or any portion of the
Collateral.

      

      Judgment.
Unless adequately covered by insurance in the opinion of Lender, the entry of a
final judgment for the payment of money involving more than ten thousand dollars
($10,000.00) against Borrower and the failure by Borrower to discharge the same,
or cause it to be discharged, or bonded off to Lender's satisfaction, within
thirty (30) days from the date of the order, decree or process under which or
pursuant to which such judgment was entered.

      

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

      

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

       

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

      

      Insecurity.
Lender in good faith believes itself insecure.

      

      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

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      PROMISSORY
NOTE Loan No: 42431 (Continued) Page 2

      

      (including
efforts to modify or vacate any automatic stay or injunction), and appeals. If
not prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law.

      

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

      

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

       

      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.

      

      DISHONORED ITEM FEE. Borrower
will pay a fee to Lender of $25.00 if Borrower makes a payment on Borrower's
loan and the check or preauthorized charge with which Borrower pays is later
dishonored.

       

      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: FIRST NATIONAL BANK INVESTMENT,
MANAGEMENT AND TRUST IMA # 40010081 95 described in a Commercial
Pledge Agreement dated May 16, 2008.

      

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

      

      FINANCIAL STATEMENTS. Borrower
agrees to provide Lender with such financial statements and other related
information at such frequencies and in such detail as Lender may reasonably
request.

      

      ATTORNEY'S FEES. Attorney's
fees provided for herein shall include any and all expert and other professional
services, fees and expenses. The attorney's fees provided for herein shall be
awarded the Lender in any court litigation or administrative
foreclosure.

      

      NOTE LOAN AGREEMENT. This Note
and all documents relating to this loan and all other loans, debts, liabilities,
obligations, including but not limited to overdrafts, letters of credit,
guarantees, and all other advances from Lender to Borrower are further governed
by the Loan Agreement executed between Lender and Borrower as part of this loan,
as modified, amended, or supplemented. Upon execution of this Note, Borrower
represents that they have reviewed and are in compliance with the terms
contained in the Loan Agreement.

      

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

      

      NOTIFY US OF INACCURATE INFORMATION
WE REPORT TO CONSUMER REPORTING AGENCIES. Please notify us if we report
any inaccurate information about your account(s) to a consumer reporting agency.
Your written notice describing the specific inaccuracy(ies) should be sent to us
at the following address: First National Bank Loan Operations P.O. Box 578 Fort
Collins, CO 80522.

      

      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. Each Borrower understands and agrees that, with
or without notice to Borrower, Lender may with respect to any other Borrower (a)
make one or more additional secured or unsecured loans or otherwise extend
additional credit; (b) alter, compromise, renew, extend, accelerate, or
otherwise change one or more times the time for payment or other terms of any
indebtedness, including increases and decreases of the rate of interest on the
indebtedness; (c) exchange, enforce, waive, subordinate, fail or decide not to
perfect, and release any security, with or without the substitution of new
collateral; (d) apply such security and direct the order or manner of sale
thereof, including without limitation, any non-judicial sale permitted by the
terms of the controlling security agreements, as Lender in its discretion may
determine; (e) release, substitute, agree not to sue, or deal with any one or
more of Borrower's sureties, endorsers, or other guarantors on any terms or in
any manner Lender may choose; and (f) determine how, when and what application
of payments and credits shall be made on any other indebtedness owing by such
other Borrower. Borrower and any other person who signs, guarantees or endorses
this Note, to the extent allowed by law, waive presentment, demand for payment,
and notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made. The obligations under this
Note are joint and several.

      

      PRIOR
TO SIGNING THlS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THlS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. EACH BORROWER AGREES
TO THE TERMS OF THE NOTE. BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF
THlS PROMISSORY NOTE.

      

      BORROWER: 

       

      AEROGROW INTERNATIONAL, INC.

       

      By:                                                                          

      JERVIS B.
PERKINS, President of AEROGROW INTERNATIONAL, INC.

       

       

      X                                                        

      JACK J.
WALKER, Individually 

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

     

    ALLONGE

    TO

    PROMISSORY
NOTE

    

    

    THIS
ALLONGE TO PROMISSORY NOTE, effective as of May 19, 2008, amends that certain
Promissory Note (the “Note”) dated May 19,
2008 in the original principal amount of $1,000,000.00 payable to FIRST NATIONAL
BANK (“Holder”)
by AEROGROW INTERNATIONAL, INC. AND JACK J. WALKER (“Makers”).

    

    FOR GOOD
AND VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby
acknowledged, Makers and Holder hereby agree as follows:

    

    1.           The
section of the Note entitled “DEFAULT” is amended and restated in its entirety
as follows:

    

    
      	
               
      

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

            

    

    

    
      	
               
      

            	
              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 the
      Business Loan Agreement (the “Agreement”)
      between the Makers and the Holder of even date herewith or in any of the
      Related Documents (as defined in the Agreement) or to comply with or to
      perform any term, obligation, covenant or condition contained in any other
      agreement between Makers and the Holder and such failure to comply or
      perform remains uncured for a period of three (3)
  days.

            

    

    

    
      	
               
      

            	
              Default in Favor of
      Third Parties.  Makers or any Guarantor defaults under
      any loan, extension of credit, security agreement, purchase or sales
      agreement, or any other agreement, in favor of any other creditor or
      person that may materially affect any of Borrower’s or any Guarantor’s
      property or Borrower’s or any Guarantor’s ability to repay the Loans or
      perform their respective obligations under the Agreement or any of the
      Related Documents and such default remains uncured for a period of three
      (3) days.

            

    

    

    
      	
               
      

            	
              False
      Statements.  Any warranty, representation or statement
      made, or furnished to Holder by Makers or on Makers’ behalf under the
      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 Maker’s existence as a going business, the
      insolvency of Maker, the appointment of a receiver for any part of Maker’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 Makers and such proceeding
      under any bankruptcy or insolvency laws remains unstayed for a period of
      forty five (45) days.

            

    

    

    
      	
               
      

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

            

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
 

    
      	
               
      

            	
              Creditor or Forfeiture
      Proceedings.  Commencement of foreclosure or forfeiture
      proceedings, whether by judicial proceeding, self-help, repossession or
      any other method, by any creditor of a Maker or by any governmental agency
      against any collateral securing the obligations arising under this Note or
      the Agreement or Related Documents.  This includes a garnishment
      of any of a Maker’s accounts, including deposit accounts, with
      Holder.  However, this Event of Default shall not apply if there
      is a good faith dispute by Makers as to the validity or reasonableness of
      the claim which is the basis of the creditor or forfeiture proceeding and
      if Makers give Holder written notice of the creditor or forfeiture
      proceeding and deposits with Holder monies or a surety bond for the
      creditor or forfeiture proceeding, in an amount determined by Holder, 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 fifty percent
      (50%) or more of the common stock of AeroGrow International,
      Inc.

            

    

    

    
      	
               
      

            	
              Adverse
      Change.  A material adverse change occurs in Makers’
      financial condition, or Holder believes the prospect or payment or
      performance of the Note or the obligations arising under the Loan
      Agreement and Related Documents is impaired and such condition remains
      uncured for a period of three (3) days after notice from the
      Borrower.

            

    

    

    
      	
               
      

            	
              Insecurity.  Holder
      in good faith believes itself insecure and such belief remains uncured for
      a period of three (3) days after notice to the
  Makers.

            

    

     

    2.           Except
as expressly amended herein, the terms and provisions of the Note shall remain
the same.

    

    3.           In
the event of a conflict between the terms of the Note and the terms of this
Allonge, the terms of this Allonge shall control.

    

    This
Allonge (a) may not be amended except by a writing signed by the Makers and the
Holder; and (b) shall be governed by Colorado law.

    

    IN
WITNESS WHEREOF, the parties have caused this Allonge to be executed as of the
date first written above and attached to the Note.

    

    HOLDER:                                                                                     MAKER:

    

    
      	
              FIRST
      NATIONAL BANK

            	
              AEROGROW
      INTERNATIONAL,    INC.

            

    

    

    By:  ____________________________                             By:  __________________________

            Zan
M.
Powell                                                                       
     Jervis B. Perkins

            Vice
President                                                                       
     President

     

    ______________________________

    JACK J.
WALKER, Individually

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