Document:

ex10-4.htm

    Exhibit
10.4

     

     

    
      COMMERCIAL PLEDGE 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

                     

                     

                  
	
                    Grantor:     

                  	
                    JACK
      J. WALKER

                    1270
      OLD TALE ROAD

                    BOULDER,
      CO 80303

                  	 	 	 
	
                  

          

        

      

       

       

       

      THIS COMMERCIAL PLEDGE AGREEMENT dated May 16, 2008, is made and executed
among JACK J. WALKER
("Grantor"); AEROGROW
INTERNATIONAL, INC.; and JACK J. WALKER ("Borrower");
and First National Bank ("Lender").

       

      
        

        GRANT OF SECURITY INTEREST.
For valuable consideration, Grantor grants to Lender a security interest in the
Collateral to secure the lndebtedness 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 Grantor's present and future
rights, title and interest in and to the following described investment
property, together with any and all present and future additions thereto,
substitutions therefor, and replacements thereof, and further together with all
lncome and Proceeds as described herein:

        

        FIRST
NATIONAL BANK INVESTMENT, MANAGEMENT AND TRUST IMA # 4001008195

        

        CROSS-COLLATERALIZATION. In
addition to the Note, this Agreement secures all obligations, debts and
liabilities, plus interest thereon, of either Grantor or Borrower to Lender, or
any one or more of them, as well as all claims by Lender against Borrower and
Grantor or any one 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
Borrower or 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.

        

        BORROWER'S WAIVERS AND
RESPONSIBILITIES. Except as otherwise required under this Agreement or by
applicable law, (A) Borrower agrees that Lender need not tell Borrower about any
action or inaction Lender takes in connection with this Agreement; (B) Borrower
assumes the responsibility for being and keeping informed about the Collateral;
and (C) Borrower waives any defenses that may arise because of any action or
inaction of Lender, including without limitation any failure of Lender to
realize upon the Collateral or any delay by Lender in realizing upon the
Collateral; and Borrower agrees to remain liable under the Note no matter what
action Lender takes or fails to take under this Agreement.

        

        GRANTOR'S REPRESENTATIONS AND
WARRANTIES. Grantor warrants that: (A) this Agreement is executed at
Borrower's request and not at the request of Lender; (6) Grantor has the full
right, power and authority to enter into this Agreement and to pledge the
Collateral to Lender; (C) Grantor has established adequate means of obtaining
from Borrower on a continuing basis information about Borrower's financial
condition; and (D) Lender has made no representation to Grantor about Borrower
or Borrower's creditworthiness.

        

        GRANTOR'S WAIVERS. Grantor
waives all requirements of presentment, protest, demand, and notice of dishonor
or non-payment to Borrower or Grantor, or any other party to the lndebtedness or
the Collateral. Lender may do any of the following with respect to any
obligation of any Borrower, without first obtaining the consent of Grantor: (A)
grant any extension of time for any payment, (B) grant any renewal, (C) permit
any modification of payment terms or other terms, or (D) exchange or release any
Collateral or other security. No such act or failure to act shall affect
Lender's rights against Grantor or the Collateral.

        

        RIGHT OF SETOFF. To the extent
permitted by applicable law, Lender re<erves 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 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.

        

        REPRESENTATIONS AND WARRANTIES WITH
RESPECT TO THE COLLATERAL. Grantor represents and warrants to Lender
that: 

         

        Ownership.
Grantor is the lawful owner of the Collateral free and clear of all security
interests, liens, encumbrances and claims of others except as disclosed to and
accepted by Lender in writing prior to execution of this Agreement.

        

        Right to
Pledge. Grantor has the full right, power and authority to enter into this
Agreement and to pledge the Collateral. 

         

        Authority;
Binding Effect. Grantor has the full right, power and authority to enter into
this Agreement and to grant a security interest in the Collateral to Lender.
This Agreement is binding upon Grantor as well as Grantor's successors and
assigns, and is legally enforceable in accordance with its terms. The foregoing
representations and warranties, and all other representations and warranties
contained in this Agreement are and shall be continuing in nature and shall
remain in full force and effect until such time as this Agreement is terminated
or cancelled as provided herein.

         

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

        

        No
Defaults. There are no defaults existing under the Collateral, and there are no
offsets or counterclaims to the same. Grantor will strictly and promptly perform
each of the terms, conditions, covenants and agreements, if any, contained in
the Collateral which are to be performed by Grantor.

        

        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.

        

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

        

        LENDER'S RIGHTS AND OBLIGATIONS WlTH
RESPECT TO THE COLLATERAL. Lender may hold the Collateral until all
lndebtedness has been paid and satisfied. Thereafter Lender may deliver the
Collateral to Grantor or to any other owner of the Collateral. Lender shall have
the following rights in addition to all other rights Lender may have by
law:

        

        Maintenance
and Protection of Collateral. Lender may, but shall not be obligated to, take
such steps as it deems necessary or desirable to protect, maintain, insure,
store, or care for the Collateral, including paying of any liens or claims
against the Collateral. This may include such things as hiring other people,
such as attorneys, appraisers or other experts. Lender may charge Grantor for
any cost incurred in so doing. When applicable law provides more than one method
of perfection of Lender's security interest, Lender may choose the method(s1 to
be used.

        

        lncome
and Proceeds from the Collateral. Lender may receive all lncome and Proceeds and
add it to the Collateral. Grantor agrees to deliver to Lender immediately upon
receipt, in the exact form received and without commingling with other property,
all lncome and Proceeds from the Collateral which may be received by, paid, or
delivered to Grantor or for Grantor's account, whether as an addition to, in
discharge of, in substitution of, or in exchange for any of the
Collateral.

        

        Application
of Cash. At Lender's option, Lender may apply any cash, whether included in the
Collateral or received as lncome and Proceeds or through liquidation, sale, or
retirement, of the Collateral, to the satisfaction of the lndebtedness or such
portion thereof as Lender shall choose, whether or not matured.

        

        Transactions
with Others. Lender may (1)
extend time for payment or other performance, (2) grant a renewal or
change in terms or Loan No Calf
t Coll Account Officer
lnitlals

        

        

        

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        

         

        COMMERCIAL PLEDGE AGREEMENT Loan No:
42431 (Continued) Page 2 

         

        conditions,
or (3) compromise, compound or release any obligation, with any one or more
Obligors, endorsers, or Guarantors of the lndebtedness as Lender deems
advisable, without obtaining the prior written consent of Grantor, and no such
act or failure to act shall affect Lender's rights against Grantor or the
Collateral.

        

        All
Collateral Secures Indebtedness. All Collateral shall be security for the
Indebtedness, whether the Collateral is located at one or more offices or
branches of Lender. This will be the case whether or not the office or branch
where Grantor obtained Grantor's loan knows about the Collateral or relies upon
the Collateral as security.

        

        Collection
of Collateral. Grantor agrees that Lender may, at any time and for any reason,
whether or not Borrower and Grantor are then in default under any indebtedness,
collect the lncome and Proceeds directly from the Obligors. Grantor authorizes
and directs the Obligors, if Lender decides to collect the lncome and Proceeds,
to pay and deliver to Lender all lncome and Proceeds from the Collateral and to
accept Lender's receipt for the payments.

        

        Power of
Attorney. Grantor irrevocably appoints Lender as Grantor's attorney-in-fact,
with full power of substitution, (a) to demand, collect, receive, receipt for,
sue and recover all lncome and Proceeds and other sums of money and other
property which may now or hereafter become due, owing or payable from the
Obligors in accordance with the terms of the Collateral; (b) to execute, sign
and endorse any and all instruments, receipts, checks, drafts and warrants
issued in payment for the Collateral; (c) to settle or compromise any and all
claims arising under the Collateral, and in the place and stead of Grantor,
execute and deliver Grantor's release and acquittance for Grantor; (d) to file
any claim or claims or to take any action or institute or take part in any
proceedings, either in Lender's own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable; and (e) to execute in Grantor's name and to deliver to the Obligors
on Grantor's behalf, at the time and in the manner specified by the Collateral,
any necessary instruments or documents.

        

        Perfection
of Security Interest. Upon Lender's request, Grantor will deliver to Lender any
and all of the documents evidencing or constituting the Collateral. When
applicable law provides more than one method of perfection of Lender's security
interest, Lender may choose the method(s1 to be used. Upon Lender's request,
Grantor will sign and deliver any writings necessary to perfect Lender's
security interest. 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. This is a
continuing Security Agreement and will continue in effect even though all or any
part of the lndebtedness is paid in full and even though for a period of time
Borrower may not be indebted to Lender.

        

        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 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. 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.

        

        LlMlTATlONS ON OBLIGATIONS OF
LENDER. Lender shall use ordinary reasonable care in the physical
preservation and custody of the Collateral in Lender's possession, but shall
have no other obligation to protect the Collateral or its value. In particular,
but without limitation, Lender shall have no responsibility for (A) any
depreciation in value of the Collateral or for the collection or protection of
any lncome and Proceeds from the Collateral, (B) preservation of rights against
parties to the Collateral or against third persons, (C) ascertaining any
maturities, calls, conversions, exchanges, offers, tenders, or similar matters
relating to any of the Collateral, or (D) informing Grantor about any of the
above, whether or not Lender has or is deemed to have knowledge,of such matters.
Except as provided above, Lender shall have no liability for depreciation or
deterioration of the Collateral.

        

        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
Indebtedness.

        

        Other
Defaults. Borrower or 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 Borrower or
Grantor.

        

        Default
in Favor of Third Parties. Borrower or 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 Grantor's property or ability to 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 Grantor or on Borrower's or Grantor's behalf, or made by
Guarantor, or any other guarantor, endorser, surety, or accommodation party,
under this Agreement or the Related Documents in connection with the obtaining
of the lndebtedness evidenced by the Note or any security document directly or
indirectly securing repayment of the 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.

        

        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.

        

        Death or
Interdiction. The death of Borrower or Grantor or the dissolution or termination
of Borrower's or Grantor's existence as a going business, the insolvency of
Borrower or Grantor, the appointment of a receiver for any part of Borrower's or
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 Borrower or Grantor.

        

        Creditor
or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or Grantor or by any governmental
agency against any collateral securing the Indebtedness. This includes a
garnishment of any of Borrower's or Grantor's accounts, including deposit
accounts, with Lender. However, this Event of Default shall not apply if there
is a good faith dispute by Borrower or Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or forfeiture
proceeding and if Borrower or 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 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 or Grantor and the failure by Borrower or Grantor
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 lndebtedness or 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. 

         

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

         

        Insecurity.
Lender in good faith believes itself insecure.

        
 

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        Loan No: 42431 COMMERCIAL PLEDGE
AGREEMENT (Continued) Page 3 

         

         

        RIGHTS AND REMEDIES ON
DEFAULT. If an Event of Default occurs under this Agreement, at any time
thereafter, Lender may exercise any one or more of the following rights and
remedies:

        

        Accelerate
Indebtedness. Declare all Indebtedness, including any prepayment penalty which
Borrower would be required to pay, immediately due and payable, without notice
of any kind to Borrower or Grantor.

        

        Collect
the Collateral. Collect any of the Collateral and, at ~ender'so ption and to the
extent permitted by applicable law, retain possession of the Collateral while
suing on the Indebtedness.

        

        Sell the
Collateral. Sell the Collateral, at Lender's discretion, as a unit or in
parcels, at one or more public or private sales. Unless the Collateral is
perishable or threatens to decline speedily in value or is of a type customarily
sold on a recognized market, Lender shall give or mail to Grantor, and other
persons as required by law, notice at least ten (10) days in advance of the time
and place of any public sale, or of the time after which any private sale may be
made. Howeyer, no notice need be provided to any person who, after an Event of
Default occurs, enters into and authenticates an agreement waiving that person's
right to notification of sale. Grantor agrees that any requirement of reasonable
notice as to Grantor is satisfied if Lender mails notice by ordinary mail
addressed to Grantor at the last address Grantor has given Lender in writing. If
a public sale is held,
there shall be sufficient compliance with all requirements of notice to the
public by a single publication in any newspaper of general circulation in the
county where the Collateral is located, setting forth the time and place of sale
and a brief description of the property to be sold. Lender may be a purchaser at
any public sale.

        

        Sell
Securities. Sell any securities included in the Collateral in a manner
consistent with applicable federal and state securities laws. If, because of
restrictions under such laws, Lender is unable, or believes Lender is unable, to
sell the securities in an open market transaction, Grantor agrees that Lender
will have no obligation to delay sale until the securities can be registered.
Then Lender may make a private sale to one or more persons or to a restricted
group of persons, even though such sale may result in a price that is less
favorable than might be obtained in an open market transaction. Such a sale will
be considered commercially reasonable. If any securities held as Collateral are
"restricted securities" as defined in the Rules of the Securities and Exchange
Commission (such as Regulation D or Rule 144) or the rules of state securities
departments under state "Blue Sky" laws, or if Grantor or any other owner of the
Collateral is an affiliate of the issuer of the securities, Grantor agrees that
neither Grantor, nor any member of Grantor's family, nor any other person
signing this Agreement will sell or dispose of any securities of such issuer
without obtaining Lender's prior written consent.

        

        Foreclosure.
Maintain a judicial suit for foreclosure and sale of the
Collateral.

        

        Specific
Performance. Lender may, in addition to or in lieu of the foregoing remedies, in
Lender's sole discretion, commence an appropriate action against Grantor seeking
specific performance of any covenant contained in this Agreement or in aid of
the execution or enforcement of any power in this Agreement
granted.

        

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

        

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

         

        Application
of Proceeds. Apply any cash which is part of the Collateral, or which is
received from the collection or sale of the Collateral, to reimbursement of any
expenses, including any costs for registration of securities, commissions
incurred in connection with a sale, attorneys' fees and court costs, whether or
not there is a lawsuit and including any fees on appeal, incurred by Lender in
connection with the collection and sale of such Collateral and to the payment of
the Indebtedness of Borrower to Lender, with any excess funds to be paid to
Grantor as the interests of Grantor may appear. Borrower agrees, to the extent
permitted by law, to pay any deficiency after application of the proceeds of the
Collateral to the Indebtedness.  

         

        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.

        

        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.

        

        Joint and
Several Liability. All obligations of Borrower and Grantor under this Agreement
shall be joint and several, and all references to Grantor shall mean each and
every Grantor, and all references to Borrower shall mean each and every
Borrower. This means that each Borrower and Grantor signing below is responsible
for all obligations in 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 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.

        

        Non-Liability
of Lender. The relationship between Borrower and Grantor and Lender created by
this Agreement is strictly a debtor and creditor relationship and not fiduciary
in nature, nor is the relationship to be construed as creating any partnership
or joint venture between Lender and Borrower and Grantor. Borrower and Grantor
are exercising Borrower's and Grantor's own judgment with respect to Borrower's
and Grantor's business. All information supplied to Lender is for Lender's
protection only and no other party is entitled to rely on such information.
There is no duty for Lender to review, inspect, supervise or inform Borrower and
Grantor of any matter with respect to Borrower's and Grantor's business. Lender
and Borrower and Grantor intend that Lender may reasonably rely on ail
information supplied by Borrower and Grantor to Lender, together with all
representations and warranties given by Borrower and Grantor to Lender, without
investigation or confirmation by Lender and that any investigation or failure to
investigate will not diminish Lender's right to so rely. 

         

        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.

        

        Severability.
If a court of competent jurisdiction finds any provision of this Agreement to be
illegal, invalid, or unenforceable as to any

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        

        COMMERCIAL PLEDGE AGREEMENT Loan No:
42431 (Continued) Page 4 

         

        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. 

         

        Sole
Discretion of Lender. Whenever Lender's consent or approval is required under
this Agreement, the decision as to whether or,not to consent or approve shall be
in the sole and exclusive discretion of Lender and Lender's decision shall be
final and conclusive. 

         

        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 lndebtedness by way of forbearance or extension without releasing
Grantor from the obligations of this Agreement or liability under the
Indebtedness.

        

        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 /allowing 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 Pledge Agreement, as this Commercial
Pledge Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Commercial Pledge 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 of Grantor's right, title and interest in and to
all the Collateral.as described in the Collateral Description section of this
Agreement.

        

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

         

        Event of
Default. The words "Event of Default" mean individually, collectively, and
interchangeably any of the events of default set forth in this Agreement in the
default section of this Agreement.

        

        Grantor.
The word "Grantor" means JACK J. WALKER.

         

        Guarantor.
The word "Guarantor" means any guarantor, surety, or accommodation party of any
or all of the Indebtedness, and, in each case, Grantor's successors, assigns,
heirs, personal representatives, executors and administrators of any guarantor,
surety, or accommodation party.

        

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

        

        lncome
and Proceeds. The words "lncome and Proceeds" mean all present and future
income, proceeds, earnings, increases, and substitutions from or for the
Collateral of every kind and nature, including without limitation all payments,
interest, profits, distributions, benefits, rights, options, warrants,
dividends, stock dividends, stock splits, stock rights, regulatory dividends,
subscriptions, monies, claims for money due and to become due, proceeds of any
insurance on the Collateral, shares of stock of different par value or no par
value issued in substitution or exchange for shares included in the Collateral,
and all other property Grantor is entitled to receive on account of such
Collateral, including accounts, documents, instruments, chattel paper,
investment property, and general intangibles.

        

        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. Specifically, without
limitation, lndebtedness includes all amounts that may be indirectly secured by
the Cross-Collateralization provision of this Agreement.

        

        Lender.
The word "Lender" means First National Bank, its successors and
assigns.

        

        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.

        

        Obligor.
The word "Obligor" means individually, collectively and interchangeably without
limitation any and all persons obligated to pay money or to perform some other
act under the Collateral.

        

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

        

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

         

        
 

        BORROWER
AND GRANTOR HAVE READ AND UNDERSTOOD ALL THE PROVISIONS OF THlS COMMERCIAL
PLEDGE AGREEMENT AND AGREE TO ITS TERMS. THlS AGREEMENT IS DATED MAY 16, 2008.

         

        GRANTOR:

         

        X                                                      
 

        JACK
J. WALKER, Individually 

         

        BORROWER:

         

        AEROGROW
INTERNATIONAL, INC. 

         

        By:                                                    

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

         

         

        X                                                  

        JACK
J. WALKER, Individually 

         

      

       

       

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ADDENDUM

    to

    COMMERCIAL
PLEDGE AGREEMENT

    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 Commercial Pledge Agreement (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
subsection of the Agreement entitled “DEFAULT” is amended and restated to read
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 Borrowers and the Lender 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 Borrowers and the Lender and such failure to
      comply or perform remains uncured for a period of three (3)
      days.

            

    

    

    
      	
               
      

            	
              Default in Favor of
      Third Parties.  Borrowers 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 Lender by Borrowers or on Borrowers’ 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 Aerogrow International, Inc existence as a
      going business, the insolvency of Borrowers, the appointment of a receiver
      for any part of Borrowers’ 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 Borrowers
      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 Borrower 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 Borrowers’ accounts, including deposit accounts,
      with Lender.  However, this Event of Default shall not apply if
      there is a good faith dispute by Borrowers as to the validity or
      reasonableness of the claim which is the basis of the creditor or
      forfeiture proceeding and if Borrowers give 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 AeroGrow International,
      Inc.

            

    

    

    
      	
               
      

            	
              Adverse
      Change.  A material adverse change occurs in any
      Borrower’s financial condition, or Lender 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.  Lender
      in good faith believes itself insecure and such belief remains uncured for
      a period of three (3) days after notice to the
  Borrowers.

            

    

     

    2.     
       All other terms and conditions
of the Agreement remain the same.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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

    

    

    BORROWER:                                                                           LENDER:

    

    AEROGROW INTERNATIONAL,
INC.                             FIRST
NATIONAL BANK

    

    

    

    By:  ____________________________                          By:  ________________________

    Jervis B.
Perkins                                                                     
Zan M. Powell

    President                                                                                   Vice
President

    

    

    ____________________________________________

    JACK J.
WALKER, individually

    

    GRANTOR:

    
 

    

    

    ____________________________

    JACK J.
WALKERex10-5.htm

    
      Exhibit
10.5

      Loan Agreement

      

      This Loan
Agreement (this “Agreement”), is made
effective this ___th day of May, 2008 by and between WLoans,
LLC, a Colorado limited liability company with a principal place of
business located at 3100 Arapahoe, Suite 301, Boulder Colorado 80303 (“Lender”); AeroGrow
International, Inc., a Nevada corporation with a principal place of
business located at 6075 Longbow Drive, Boulder Colorado 80301 (“Borrower”); and Jack J.
Walker, an individual with a residence located at 1270 Old Tale Road,
Boulder Colorado 80303 (“Walker”).

      

      Background

      

      
        	
                A.  

              	
                Borrower
      and Lender desire to set forth herein the terms and conditions pursuant to
      which Lender shall loan to Borrower an amount not to exceed One Million
      Five Hundred Thousand Dollars ($1,500,000) (the “Loan”) to be repaid in
      accordance with the terms set forth herein;
and

              

      

      

      
        	
                B.  

              	
                Walker
      and Borrower desire to set forth herein terms and conditions pursuant to
      which Walker shall act as a co-borrower with Borrower on that certain loan
      with First National Bank (the “FNB
    Loan”).

              

      

      

      Now,
Therefore, in consideration of the premises and mutual covenants set
forth herein, the parties hereto hereby agree as follows:

      

      Agreement

      1. The
Loan

      
      

      

      1.1 Loan and
Note.  Upon the terms and subject to the conditions hereinafter
set forth, Lender shall from time to time, disburse funds (each a “Loan Disbursement”) to
Borrower at Borrower’s written request, up to a maximum of One Million
Five Hundred Thousand Dollars ($1,500,000) in total outstanding principal
(the “Principal
Amount”), for use in the business of the Borrower.  The Loan
shall be evidenced by a promissory note executed in connection with this
Agreement (the “Note”).

      

      1.2 Loan
Disbursements.  Loan Disbursements shall be made upon at least
fourteen (14) business days’ written notice to Lender (each, a “Disbursement
Request”).  The minimum amount of each Loan Disbursement shall
be not less than One Hundred Thousand Dollars ($100,000).  Only one
(1) Loan Disbursement shall be permitted in any thirty (30) day
period.  This is not a revolving line and the total amount of Loan
Disbursements will not exceed One Million Five Hundred Thousand Dollars
($1,500,000); any principal amounts repaid shall not increase any remaining
amount available for disbursement.

      

      1.3 Interest.  The
interest rate on the Loan shall be at an annual rate of twelve
percent (12%)
(the “Interest”).  Interest
shall be compounded monthly and accrue on such of the Principal Amount as is
outstanding (the “Outstanding
Principal”).

      

      1.4 Fees. 
(a) Upon execution of this Agreement, Borrower shall have paid Lender a
non-refundable commitment fee of $37,500 (“Commitment
Fee”).

      

       
(b) For the
duration of this Agreement, Lender hereby covenants and agrees to hold available
funds equal to the Principal Amount or the Retained Funds (as hereinafter
defined), for disbursement under the Loan.  In consideration of
Lender’s retention of sufficient funds to be available for disbursement under
the Loan, Borrower shall pay a non-refundable fee in the amount equal to one
percent
(1%)
of any Principal Amount which has not yet been disbursed (the “Retained Funds”), payable
quarterly in advance (the “Holding Fee”).

      

      1.5 Reimbursable
Expenses.  Borrower shall reimburse Lender for any and all
out-of-pocket costs and expenses incurred by Lender in connection with the
preparation of this Agreement, the Note, the making of any Loan Disbursement and
the documentation and consummation of any transactions contemplated herein,
including without limitation, legal expenses, or any amounts incurred by Lender
in seeking to collect any amount due under this Agreement, the Note or otherwise
related to the Loan and to administer and enforce any of Lender’s rights
hereunder (collectively, the “Reimbursable
Expenses”).

      

      
        
          
          

        

        
          PAGE 1 OF
8 PAGES

          
            

          

        

        
          
          

        

      

       

      1.6 Payment
Terms.  The Loan shall be due and payable on or before April 1,
2009 (the “Maturity
Date”).  If not sooner paid, the entire Outstanding Principal,
accrued Interest and accrued Holding Fees shall be due and payable on the
Maturity Date.

      

       (a) Interest
on any Outstanding Principal shall accrue from the date of any Loan Disbursement
and shall be paid quarterly in arrears commencing on August ___,
2008.

      

       (b) Holding
Fees shall accrue from the date first set forth above and be paid quarterly in
advance, commencing on May ___, 2008.

      

      1.7 Security.  As
security for the Loan, Borrower hereby grants to Lender a security interest in
and to all of the assets owned by Borrower, whether now existing or hereafter
from time to time acquired (collectively, the “Collateral”).  Lender’s
security interest shall be subordinate to security interests granted by Borrower
to secure the line of credit between Borrower and FCC, LLC, d/b/a First Capital
(the “First Capital
Loan”) and the security interest granted by Borrower to secure the FNB
Loan.

      

      1.8 Termination
of Obligations.  In the event Borrower receives any equity
financing, the entire Outstanding Principal, accrued Interest and accrued
Holding Fees shall become immediately due and payable and Lender’s obligations
hereunder, including its obligation to hold sufficient funds available for the
Loan, shall terminate.

      

      2. Conditions
Precedent to Making the Loan and Each Loan
Disbursement.  Lender’s obligation to make the Loan or any Loan
Disbursement hereunder shall be subject to the satisfaction in full or waiver of
the following conditions precedent:

      

      2.1 Borrower
shall have delivered to Lender (a) an original of the Note evidencing the Loan,
duly executed by Borrower; and (b) an original certificate signed by an officer
of Borrower certifying (i) the corporate actions taken by Borrower authorizing
execution of this Agreement and the Note; and (ii) the incumbency of the officer
or officers authorized to sign this Agreement, the Note and any other documents
delivered to Lender in connection with transactions contemplated
hereby.

      

      2.2 Borrower
shall not be in default and no event which might become a default after the
lapse of time, has occurred and is continuing under any of the terms or
conditions contained in (a) this Agreement or the Note; (b) the FNB Loan; or (c)
the First Capital Loan.  Collectively the First Capital Loan and the
FNB Loan shall be referred to herein as the “Related Loans.”

      

      2.3 Borrower’s
representations and warranties as set forth herein are true, complete and
correct when made and shall be true, complete and correct as of the date of any
Loan Disbursement.

      

      2.4 Borrower
shall have established a committee made up of Borrower’s Chief Financial Officer
and two (2) members of Borrower’s audit committee (the “Loan Committee”) and a
majority of the Loan Committee shall have voted to request a Loan
Disbursement.

      

      2.5 Borrower
shall have delivered to Lender an original Disbursement Request fully completed
and duly executed by Borrower at least fourteen (14) days prior to the date of
the requested disbursement.

      

      2.6 Borrower
shall have paid in full to Lender all Reimbursable Expenses incurred by Lender
as of the date of any Loan Disbursement.

      

      3. The FNB
Loan.  Walker hereby agrees to act as a co-maker with Borrower
on that certain promissory note in favor of First National Bank in the amount of
One Million Dollars ($1,000,000) (the “FNB Note”) pursuant to the
following terms and conditions:

      

      
        
          
          

        

        
          PAGE 2
OF 8 PAGES

          
            

          

        

        
          
          

        

      

       

      3.1 Service
Fee.  In consideration of Walker’s acting as a co-maker on the
FNB Note, upon execution of the FNB Note Borrower shall pay to Walker, in
immediately available funds, a service fee of Fifty
Thousand
Dollars ($50,000) (the “Service Fee”).

      

      3.2 Default on
the FNB Loan.  In the event Walker is required to make payments
on the FNB Note due to Borrower’s default thereon, (a) Walker shall, in his sole
discretion, be entitled to purchase the FNB Note from First National Bank for
the outstanding balance due on the FNB Note and the obligations of Borrower
under the FNB Note will be assigned to Walker; and (b) Borrower shall be
obligated to immediately repay to Walker any amounts expended by Walker in
payments on the FNB Note (the “FNB Payments”), which FNB
Payments shall bear interest at a rate of eighteen
percent (18%) per annum from the date advanced until paid in
full.

      

      3.3 Termination.  Walker’s
obligation under this Section 3 shall terminate on the one-year anniversary of
the execution date of the FNB Note.  Upon such termination Borrower
shall execute any such documents as required by Walker or First National Bank to
release Walker from any further obligations under the FNB Note.

      

      4. Affirmative
Covenants.  Until the Loan is paid in full and all obligations
have been performed by Borrower, Borrower agrees to do all the following unless
waived by Lender in writing:

      

      4.1 Payment of
Principal and Interest.  Borrower shall punctually pay all
amounts due under this Loan Agreement, the Note and the Related Loans, when and
as the same shall become due and payable.

      

      4.2 Compliance
with Laws.  Borrower shall promptly and faithfully comply with,
conform to and obey all applicable present and future laws, ordinances, rules,
regulations and other requirements that could materially adversely affect the
conduct of the operations of Borrower.

      

      4.3 Prompt
Notice.  Promptly after discovery thereof, Borrower will notify
Lender of (i) the details of any action, proceeding, investigation or claim
against or affecting Borrower instituted before any court, arbitrator or
governmental authority or to Borrower's knowledge threatened to be instituted,
which, if adversely determined, would be likely to have a material adverse
effect on the financial condition or operations of Borrower, or result in a
judgment or order against Borrower; (ii) any substantial dispute between
Borrower and any governmental authority; and (iii) the occurrence of any Event
of Default (as hereinafter defined) or other event which, with notice or lapse
of time or both, would constitute an Event of Default.

      

      4.4 Information
Requests.  Borrower will provide such further information as
Lender may reasonably request to determine whether Borrower is complying with
its obligations under this Loan Agreement, the Note, the Related Loans and other
documents executed in connection herewith, or to determine the financial
condition of Borrower.

      

      4.5 Change of
Control.  Without the prior written consent of Lender, Borrower
shall not (a) enter into any merger or consolidation, or sell, lease or
otherwise dispose of all or substantially all of its assets; (b) create any new
subsidiary or affiliate or issue any shares of, or warrants or other rights to
receive or purchase any shares of, any class of its stock; (c) enter into any
transaction outside the ordinary course of Borrower’s business; (d) change the
state of its incorporation or principal place of business or enter into any
transaction which has the effect of changing Borrower’s state of incorporation
or principal place of business.

      

      4.6 Business
Operations.  Borrower’s general business and operations shall
not be altered without the prior written consent of Lender.  Borrower
shall conduct its business in a reasonable prudent manner in its ordinary course
and Borrower will not perform or otherwise engage in any act which may result in
any loss or diminution or restriction of any of the licenses, franchises or
authority of Borrower to conduct the business which it has conducted prior to
the date of this Agreement.

      
        
          
          

        

        
          PAGE 3
OF 8 PAGES

          
            

          

        

        
          
          

        

      

       

      4.7 Insurance.  Borrower
shall continue to carry and maintain with reputable insurers, fire, extended
coverage, liability and worker's compensation insurance in accordance with the
customary practice of similar businesses.

      

      4.8 Use and
Care of Assets.  Borrower shall maintain its physical assets in
a state of good repair and will not dispose of or otherwise deal in or with any
of such assets in violation of any of the provisions of this
Agreement.

      

      4.9 Other
Indebtedness.  Except for the Related Loans, Borrower shall not
enter into any additional corporate borrowings without the prior written consent
of Lender.

      

      4.10 First
Capital Certificate.  On or before the tenth (10th) day of
each calendar month, Borrower agrees to provide First Capital the certificate
described in the Agreement of Subordination and Assignment among Borrower,
Lender and First Capital.

      

      5. Events of
Default.  The occurrence of any of the following shall
constitute an event of default hereunder (“Event of
Default”):

      

      5.1 Default in
Payment Obligations.  If Borrower shall fail to pay all or any
portion of (a) the Outstanding Principal, when and as the same shall become due
and payable, whether at the due date thereof or by acceleration or otherwise;
(b) any installment of Interest due on the Note; or (c) any Holding Fees due on
the Retained Funds, when and as the same shall become due and
payable.

      

      5.2 Default in
Other Obligations.  If Borrower shall have failed to perform or
observe any other obligation, covenant or agreement contained in this Agreement
or the Note and such failure continues for twenty (20) days after written notice
thereof from Lender.

      

      5.3 Default on
Related Loans.  If Borrower shall be in default of any payment
obligation, other obligation, covenant or agreement contained in the Related
Loans, and such default has not been cured within any applicable cure period
related thereto.

      

      5.4 Breach of
Warranty.  If any representation or warranty made herein or in
the Note or in any report, certificate, opinion, financial statement or other
document or statement delivered pursuant to the provisions of this Agreement or
the Note, or otherwise, shall prove to have been false or misleading in any
material respect as of the date on which the same was made, and Borrower fails
to cure such breach within twenty (20) days after written notice thereof from
Lender.

      

      5.5 Bankruptcy,
Receivership, Insolvency, etc.  If Borrower shall (a) apply for
or consent to the appointment of a receiver, trustee or liquidator for it or any
of its property; (b) admit in writing an inability to pay its debts as they
mature; (c) make a general assignment for the benefit of creditors; (d) be
adjudicated a bankrupt or insolvent; (e) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization or an arrangement
with creditors or to take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation laws or statutes or
file an answer admitting the material allegations of a petition filed against it
in any proceeding under any such law, or if any such petition should be filed
against Borrower and remain for sixty (60) days undismissed; (f) suffer any
judgment or lien against it of $20,000 or more and such judgment or lien is not
satisfied or dismissed within sixty (60) days; or (g) be insolvent, as evidenced
by a general inability to pay its debts as they mature (but not including its
non-recourse debts).

      

      6. Remedies.  In
addition to any other remedies set forth herein or in the Note, if any Event of
Default shall occur and be continuing, Lender may, at its option, exercise any
rights granted to Lender by law or under this Agreement, including without
limitation, Lender may:

      

      6.1 At its
option and without notice or demand to Borrower or legal process of any kind
accelerate and declare to be immediately due and payable, any Outstanding
Principal, accrued and unpaid Interest, and accrued and unpaid Holding Fees,
whereupon the same shall become immediately due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived;
and Lender shall thereupon be entitled to institute proceedings to collect the
same and to recover judgment for the same and to collect upon such judgment out
of any property of Borrower wheresoever situated;

      

      
        
          
          

        

        
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      6.2 Foreclose
on the security interest and Collateral granted herein; and

      

      6.3 Pursue
each and every other right, remedy or power available to it under this
Agreement, the Note and/or available to it at law or in equity.  Upon
the occurrence of an Event of Default hereunder, any amounts due hereunder shall
accrue interest at the rate of eighteen
percent (18%) per annum from the due date therefor until paid in
full.

      

      
        
          
          

        

        
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      7. Representations
And Warranties

      

      7.1 Borrower
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada and in good standing in the State of Colorado where
it maintains a permanent business location and has the power and authority to
enter into and perform its obligations under this Agreement and the documents
related hereto.

      

      7.2 This
Agreement, the Note and any other loan documents to which Borrower is a party
constitute the legal, valid and binding obligations of Borrower in accordance
with their respective terms except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting the enforcement of creditors’ rights generally, now or hereafter in
effect; and the execution, delivery and performance of the same by Borrower do
not violate any provision of law, any order of any court or other agency of
government, Borrower’s Certificate of Incorporation and related organizational
documentation, or any indenture, agreement or other instrument to which Borrower
is a party; nor do the same conflict with, result in a breach of or, with giving
of notice, or the passage of time, or both, constitute a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any security interest, lien, charge or encumbrance of any nature
whatsoever upon any of its property or assets.

      

      7.3 The
execution and delivery by Borrower of this Agreement and the Note have been duly
and validly authorized by all necessary corporate action, and no other corporate
proceedings or shareholder actions are necessary in order for Borrower to
authorize the transactions contemplated hereby or thereby, the performance by
Borrower of its obligations hereunder or thereunder or the consummation by
Borrower of the transactions contemplated hereby or thereby.

      

      7.4 Other
than litigation regarding Vitacost, there are no suits or proceedings pending
or, to the best knowledge of Borrower, threatened in any court or before any
regulatory commission, board or other administrative agency against or affecting
Borrower that could reasonably be expected to prevent, impede or otherwise
adversely affect Borrower’s ability to ability to perform its obligations under
this Agreement or the Note.

      

      7.5 Other
than as shown on the attached schedule of existing indebtedness, Borrower is not
now obligated, whether directly or indirectly, for any loans or other
indebtedness for borrowed money other than (a) the Related Loans; (b) such
unsecured indebtedness to trade creditors arising in the ordinary course of
Borrower’s business; and (c) unsecured indebtedness arising from the endorsement
of drafts and other instruments for collection, in the ordinary course of
Borrower’s business.

      

      7.6 Borrower
is the owner of the Collateral (or, in the case of after-acquired Collateral, at
the time Borrower acquires rights in the Collateral, will be the owner thereof)
and no other person or entity has (or, in the case of after-acquired Collateral,
at the time Borrower acquires rights therein, will have) any right, title,
claim, lien or interest in, against or to the Collateral, other than the Related
Loans; and (b) upon the filing of UCC-1 financing statements in the appropriate
filing offices, Lender has (or in the case of after-acquired Collateral, at the
time Borrower acquires rights therein, will have) a third priority perfected
security interest in the Collateral to the extent that a security interest in
the Collateral can be perfected by such filing, except only for the Related
Loans.

       

      
        
          
          

        

        
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      8. Miscellaneous.

      

      8.1 Forbearance
by Lender Not A Waiver; Remedies Cumulative.  No extension,
postponement, forbearance, delay or failure on the part of the Lender of this
Agreement in the exercise of any power, right or remedy hereunder or at law or
in equity, shall operate as a waiver thereof, nor shall a single or partial
exercise of any power or right preclude other or further exercise thereof or the
exercise of any other power, right or remedy.  All rights, powers and
remedies of Lender shall be cumulative and may be exercised simultaneously or
from time to time in such order and manner as Lender in its sole discretion may
elect.

      

      8.2 Notices.  Any
notice or other communication required or permitted to be given hereunder shall
be in writing and shall be deemed duly given or served upon the earlier of (a)
personal service; (b) actual receipt; (c) the day of transmission in the event
of a facsimile transmission with both confirmation of transmission and a copy
sent postage prepaid by US mail, or an overnight courier service; (d) one day
following posting if sent by an overnight courier service; or (e) three days
following posting, if sent by U.S. mail, postage prepaid, to the party at the
address set forth above.  Any party may change the address to which
notices shall be sent by giving written notice to such effect to the other
party.

      

      8.3 Governing
Law; Venue; Jurisdiction.  This Agreement shall be governed by
and construed in accordance with the laws of the State of Colorado, including
all matters of construction, validity and performance.  The parties
agree that any action or proceeding commenced under or with respect to this
Agreement shall be brought only in the county or district courts of Boulder
County, Colorado, and the parties irrevocably consent to the jurisdiction of
such courts and waive any right to alter or change venue, including by
removal.

      

      8.4 Entire
Agreement; Severability; Amendments.  This Agreement and the
Note constitutes the entire understanding or agreement between the parties
hereto and thereto, and there is no understanding or agreement, oral or written,
which is not set forth herein or therein.  In the event any provision
of this Agreement shall be prohibited or unenforceable in any jurisdiction, it
shall, as to such jurisdiction, be deemed modified to conform to the minimum
requirements of such law, or if for any reason it is not deemed so modified, it
shall be ineffective only to the extent of such prohibition or unenforceability
without affecting the remaining provisions hereof, and any such prohibition or
unenforceability shall not invalidate or render unenforceable such provision in
any other jurisdiction.  This Agreement may not be amended, modified
or changed, nor shall any waiver by Lender of any provision of this Agreement be
effective, except by written instrument signed by the party against whom
enforcement of such amendment, modification or waiver is sought.

      

      8.5 Benefit of
Agreement; Assignment.  The provisions of this Agreement shall
be binding upon and shall inure to the benefit of the respective successors,
permitted assigns, heirs, beneficiaries and representatives of the parties
hereto.  Lender or any holder hereof may at any time, with or without
notice to Borrower, assign or otherwise transfer its rights hereunder to any
third party.  Borrower may not assign, delegate or otherwise transfer
any of its rights and obligations hereunder without the prior written consent of
Lender.

      

      8.6 Prevailing
Party Attorney Fees.  Should any party institute any legal
proceeding to enforce any term or provision of this Agreement, the prevailing
party shall be entitled to reasonable attorney fees and the reimbursement of
related costs.

      

      8.7 Construction.  The
headings in this Agreement are solely for convenience of reference and shall be
given no effect in the construction or interpretation of this
Agreement.  This Agreement shall not be construed against any party
regardless of who is responsible for its drafting.

      

      8.8 Further
Assurances.  Each party shall perform any further acts and
execute and deliver any documents that reasonably may be necessary and requested
to carry out the provisions and intent of this Agreement.

      

      8.9 Counterparts.  This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.

       

      
        
          
          

        

        
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      8.10 Waiver of
Conflicts.  Borrower acknowledges that Jack Walker, the
Co-Borrower on the FNB Loan and the Manager of the Lender, is also a director of
the Borrower.  Mr. Walker has not participated in the determination of
the Borrower’s Board of Directors to enter into this Loan Agreement, and the
Borrower waives any conflict of interest in connection with the transactions
contemplated by this Agreement.  The Borrower acknowledges and agrees
that Mr. Walker will have the right to take all actions relating to this
Agreement and the transactions contemplated by this Agreement in his fiduciary
capacity as Manager of the Lender or in his individual capacity as Co-Borrower
on the FNB Loan.

      

      In Witness
Whereof, the parties have executed this Agreement Note as of the day and
year first above written.

      

      

      
        	
                Borrower:  AeroGrow
      International, Inc.

                 

                 

                 

                 

                By:  _____________________________________

                        Jervis
      B. Perkins, Chief Executive Officer

              	
                Lender:  WLoans,
      LLC

                 

                 

                 

                 

                By:  ________________________________

                       Jack
      J. Walker, Manager

              
	
                 

                 

                Co-Borrower
      (FNB Loan):

                 

                 

                 

                 

                ________________________________________

                       Jack
      J. Walker

              	 
      

      

      

      

      

      
        
          
          

        

        
          PAGE 8
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