Loan Agreement
Exhibit
10.5
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 0000 Xxxxxxxx, Xxxxx 000, Xxxxxxx Xxxxxxxx 00000 (“Lender”); AeroGrow
International, Inc., a Nevada corporation with a principal place of
business located at 0000 Xxxxxxx Xxxxx, Xxxxxxx Xxxxxxxx 00000 (“Borrower”); and Xxxx X.
Xxxxxx, an individual with a residence located at 0000 Xxx Xxxx Xxxx,
Xxxxxxx Xxxxxxxx 00000 (“Xxxxxx”).
Background
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A.
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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
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X.
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Xxxxxx
and Borrower desire to set forth herein terms and conditions pursuant to
which Xxxxxx shall act as a co-borrower with Borrower on that certain loan
with First National Bank (the “FNB
Loan”).
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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”).
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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. Xxxxxx 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:
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3.1 Service
Fee. In consideration of Xxxxxx’x acting as a co-maker on the
FNB Note, upon execution of the FNB Note Borrower shall pay to Xxxxxx, 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 Xxxxxx is required to make payments
on the FNB Note due to Borrower’s default thereon, (a) Xxxxxx 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 Xxxxxx; and (b) Borrower shall be
obligated to immediately repay to Xxxxxx any amounts expended by Xxxxxx 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. Xxxxxx’x
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 Xxxxxx or First National Bank to
release Xxxxxx 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.
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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 Xxxx Xxxxxx, the
Co-Borrower on the FNB Loan and the Manager of the Lender, is also a director of
the Borrower. Xx. Xxxxxx 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 Xx. Xxxxxx 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.
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Borrower: AeroGrow
International, Inc.
By: _____________________________________
Xxxxxx
X. Xxxxxxx, Chief Executive Officer
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Lender: WLoans,
LLC
By: ________________________________
Xxxx
X. Xxxxxx, Manager
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Co-Borrower
(FNB Loan):
________________________________________
Xxxx
X. Xxxxxx
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