FORBEARANCE AGREEMENT AND FOURTH AMENDMENT TO LOAN DOCUMENTS
Exhibit 10.5
FORBEARANCE
AGREEMENT AND FOURTH AMENDMENT
TO
LOAN DOCUMENTS
THIS
FORBEARANCE AGREEMENT AND FOURTH AMENDMENT TO LOAN DOCUMENTS (this “Agreement”)
is made and entered into as of the 15th day
of February, 2010 among AEROGROW INTERNATIONAL, INC.,
a Nevada corporation (“Borrower”), XXXX X. XXXXXX (“Guarantor”;
Guarantor and Borrower are sometimes referred to herein individually as an
“Obligor” and collectively as “Obligors”), and FCC, LLC, d/b/a First Capital,
a Florida limited liability company (“Lender”).
W I T N E S S E T H:
WHEREAS,
Borrower and Lender are parties to that certain Loan and Security Agreement
dated as of June 23, 2008 (as amended, restated or otherwise modified from time
to time, the “Loan Agreement”); and
WHEREAS,
Guarantor has guaranteed up to $750,000 of the obligations of Borrower to Lender
pursuant to a Limited Guaranty of Individual in favor of Lender dated as of
January 1, 2009 (as amended, restated or otherwise modified from time to time,
the “Guaranty”); and
WHEREAS,
pursuant to the Loan Agreement, Borrower agreed, among other things, to comply
with certain financial covenants; and
WHEREAS,
Borrower has not complied with such financial covenants; and
WHEREAS,
as a result of such material Defaults by Borrower, Lender has the right, as set
forth in the Loan Agreement and the other Loan Documents, to immediately
exercise all of its rights and remedies with respect to the Collateral, Borrower
and Guarantor; and
WHEREAS, Obligors have requested that
Lender temporarily forbear from exercising its rights and remedies with respect
to the Specified Defaults described below, and Lender is willing to do so on the
terms and conditions set forth herein; and
WHEREAS, in order to induce Lender to
enter into this Agreement, Guarantor has agreed to pledge certain partnership
interests owned by Guarantor to Lender pursuant to a separate pledge
agreement.
NOW,
THEREFORE, in consideration of the foregoing premises, and other good and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. All
capitalized terms used herein and not otherwise expressly defined herein shall
have the respective meanings given to such terms in the Loan
Agreement.
2. Specified
Defaults. Each Obligor acknowledges that Borrower is in
default under the following sections of the Loan Agreement:
(a) Section 6 and Item
21(a) of the Schedule as a result of Borrower’s failure to maintain the
minimum fixed charge coverage ratio required thereunder for each of the months
ended October 31, 2009, November 30, 2009 and December 31, 2009;
and
(b) Section 6 and Item
21(b) of the Schedule as a result of Borrower’s failure to maintain the
minimum tangible net worth required thereunder as of October 31, 2009, November
30, 2009 and December 31, 2009.
The
Events of Default specified in the foregoing clauses (a) through (b) are
hereafter collectively referred to as the “Specified
Defaults”. Obligors acknowledge that, as a result of the Specified
Defaults, (y) but for Lender’s agreement to forbear as set forth herein, Lender
has the right to declare all of the Obligations to be immediately due, payable
and performable, and Lender has the right to enforce collection of the
Obligations by making demand under the Guaranty and repossessing and disposing
of any interest in the Collateral, as more fully set forth in Section 13 of the Loan Agreement,
and (z) Borrower is not entitled to make any payment on any Subordinated
Debt.
3. Temporary
Forbearance. Lender agrees to forbear until the Forbearance
Termination Date (as defined below) from exercising its rights and remedies
under the Loan Agreement and the other Loan Documents as a result of the
Specified Defaults. Lender reserves its rights and remedies at all
times with respect to any Default under the Loan Agreement, the Guaranty, this
Agreement or any other Loan Document other than a Specified Default, whether
presently existing or occurring hereafter. At any time on or after
the Forbearance Termination Date, Lender may exercise any of its rights and
remedies under or with respect to the Loan Agreement, the Guaranty, this
Agreement and the other Loan Documents, whether relating to a Specified Default
or otherwise, all without notice to Borrower, Guarantor or any other
Person. As used herein, “Forbearance Termination Date” means the
earlier of (x) April 30, 2010, (y) the date of the occurrence of a Default other
than (i) a Specified Default or (ii) a Default under any of the financial
covenants set forth in Item 21
of the Schedule on or prior to April 30, 2010, and (z) the default or
breach by any Obligor of any of the covenants, agreements, representations and
warranties set forth in this Agreement. Notwithstanding Lender’s
agreement to forbear as set forth herein, Lender shall be entitled to exercise
its right to issue Stoppage Notices under and as defined in the Subordination
and Intercreditor Agreement among Lender, Borrower and First National Bank and
to take such action as Lender deems appropriate to enforce the obligations of
First National Bank and Borrower set forth therein.
4. Acknowledgements of
Obligors. In order to induce Lender to enter into this
Agreement and to grant the forbearance contemplated hereby, Borrower and
Guarantor hereby acknowledge and agree with Lender as follows:
|
|
(a)
|
The
facts set forth in the recitals to this Agreement are true and correct in
all material respects.
|
|
|
(b)
|
The
Loan Agreement, the Guaranty and the other Loan Documents constitute the
valid, binding and enforceable obligations of each Obligor party thereto
to Lender, and Lender has a valid and perfected security interest in and
to the Collateral.
|
|
|
(c)
|
Each
Obligor hereby reaffirms such Obligor’s obligations to Lender under each
of the Loan Documents to which such Obligor is a
party.
|
|
|
(d)
|
As
of the date hereof, but prior to giving effect to any loans funded by
Lender on the date hereof, the aggregate outstanding principal balance of
the loans under the Loan Agreement is
$1,637,034.89.
|
|
|
(e)
|
The
Specified Defaults are material Defaults and are continuing and have not
been waived; Lender has complied with any notice requirements with respect
to the Specified Defaults; any cure periods with respect to the Specified
Defaults have expired; and, but for Lender’s agreement to forbear as
contemplated hereby, Lender would have
the right to exercise all of its rights and remedies against Borrower,
Guarantor and the
Collateral.
|
5. Maximum Loan
Amount. The Loan Agreement is amended by deleting the
definition of “Maximum Loan Amount” set forth in Section 1 and substituting the
following in lieu thereof:
“Maximum Loan Amount”
means (a) $2,250,000 through and including March 18, 2010, and (b) $2,000,000
from and after March 19, 2010.
6. Borrowing
Base. The Loan Agreement is amended by deleting Item 1 of
the Schedule to the Loan Agreement and substituting the following in lieu
thereof:
1. Borrowing
Base
“Borrowing Base” means, at any time, an
amount equal to:
(a) the
lesser of:
(i) the
Maximum Loan Amount, and
(ii) the
sum of:
(A) 85%
of the dollar amount of Eligible Accounts; plus
(B) the
lesser of:
(1) $1,350,000,
and
|
|
(2)
|
60%
of the dollar value (determined at the lower of cost or market value) of
Eligible Inventory; plus
|
|
|
(C)
|
$600,000;
|
minus
(b) the
sum of:
|
|
(i)
|
such
reserves as Lender may establish from time to time in its discretion,
plus
|
|
|
(ii)
|
the
amount available to be drawn under, plus the amount of any unreimbursed
draws with respect to, any letters of credit or acceptances which have
been issued, created or guaranteed by Lender or any Affiliate of Lender
for Borrower’s account.
|
7. Amendment to
Guaranty. Guarantor and Lender hereby agree that the Guaranty
is hereby amended by deleting Section 7 and substituting the following in lieu
thereof:
|
|
(a)
|
Notwithstanding
anything to the contrary contained herein, the Obligations for which
Guarantor is liable hereunder shall be limited to the amount of
$1,500,000, plus all costs of collection and enforcement of Lender in
connection with this Guaranty, including court costs and reasonable
attorneys’ fees. Neither amounts (i) paid by or on behalf of
Guarantor prior to Guarantor’s receipt of written demand for payment
hereunder from Lender, (ii) received from Borrower or from any account
debtor of Borrower, nor (iii) received from the sale or other disposition
of any collateral for the Obligations shall serve to reduce the maximum
amount guaranteed under the preceding
sentence.
|
|
|
(b)
|
Notwithstanding
anything herein to the contrary, Lender agrees that it will not exercise
any rights or remedies against Guarantor or any real estate or limited
liability limited partnership interests owned by Guarantor which secures
the Obligations hereunder unless Lender gives Guarantor at least 120 days’
prior written notice thereof. From and after Guarantor’s
receipt of such written notice, Guarantor will not sell, assign, pledge,
mortgage, hypothecate or transfer any rights, title or other interest of
Guarantor in or to any substantial portion of Guarantor’s assets except
for any sale, assignment, pledge, mortgage, hypothecation or other
transfer that is either (i) in the ordinary course of Guarantor’s
business, or (ii) approved in writing by Lender. Upon the
expiration of the 120 day period, Lender may exercise any rights against
any and all real estate and limited liability limited partnership
interests securing amounts payable hereunder, and Guarantor will
immediately pay to Lender all Obligations described in Section 7(a) above
up to and including the amount of $300,000. Guarantor will pay
to Lender all remaining Obligations described in Section 7(a) above not
later than 120 days following the expiration of the initial 120 day
period. The rights and privileges of Lender under this
subsection are in addition to, and not in limitation of, any rights and
privileges that Lender may have under any laws, rules, regulations or
precedent related to bankruptcy, insolvency, receivership, fraudulent
conveyance or debtor/creditor relations, whether such laws, rules,
regulations or precedent arise under federal or state
laws.
|
8. San Antonio Real
Estate. WE-Xxxxxxxxx, XX, a Texas limited partnership (“WEC”),
is an Affiliate of Obligors. WEC has executed and delivered a Deed of
Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing in
favor of Lender (the “Deed of Trust”) with respect to certain real property in
Bexar County, Texas, as more particularly described in the Deed of Trust (the
“San Antonio Real Estate”). Contemporaneously with Lender’s receipt
of the Deed of Trust, Lender agreed not to record the Deed of Trust unless and
until a Default occurred. Lender has recorded the Deed of Trust as a
result of the Specified Defaults, and Obligors acknowledge and that such
recordation was authorized and proper in all respects. Obligors
acknowledge and agree that the San Antonio Real Estate constitutes additional
Collateral for all Obligations (subject to the limitations set forth in the
Guaranty), that the Deed of Trust and all other agreements and documents
executed and/or delivered in connection with the San Antonio Real Estate shall
constitute Loan Documents, and that any breach of any representation, warranty,
covenant or agreement thereunder, and any default or event of default
thereunder, shall each constitute a Default. Obligors represent and
warrant that the City of San Antonio has agreed to purchase the San Antonio Real
Estate, subject to completion of due diligence, for $2,915,035, such sale is
expected to close by June 30, 2010, Obligors have not received any indication
that such sale will not in fact close on or prior to such date, and such sale
will generate net cash proceeds to Guarantor of approximately
$1,000,000. So long as no Default other than the Specified Defaults
exists, Lender agrees to release the Deed of Trust contemporaneously with the
consummation of such sale so long as Lender receives all of the net cash
proceeds thereof available to Obligors (commensurate with Guarantor’s 49%
ownership interest in WEC), which proceeds must be in an amount of at least
$1,000,000. Such net cash proceeds shall be held by Lender as cash
collateral for the obligations in a manner and pursuant to documentation in
form, substance and detail satisfactory to Lender in its discretion. Obligors
agree to promptly provide to Lender such information regarding the San Antonio
Real Estate and the status of such sale as Lender may reasonably request from
time to time. A Default shall exist if the San Antonio Real Estate
has not sold or if Lender has not received at least $1,000,000 in cash
collateral as a result of such sale by June 30, 2010.
9. Dallas Real
Estate. Xxxxxxx Shopping Center, L.P., a Texas limited
partnership (“Xxxxxxx”), is an Affiliate of Obligors. Obligors
represent and warrant that (a) Guarantor controls Xxxxxxx by virtue of
Guarantor’s ownership of 49% of Xxxxxx Enterprises,
LLLP (“Xxxxxx Enterprises”), (b) Xxxxxxx owns a shopping center in Dallas, Texas
(the “Dallas Real Estate”), (c) Xxxxxx Enterprises receives net cash proceeds
from the Dallas Real Estate of approximately $120,000 per year, (d) the Dallas
Real Estate has a fair market value of approximately $9,600,000 and is subject
to a mortgage with a balance of approximately $5,600,000 and no other mortgages
or other Liens (other than Liens for taxes which are not past due), and (e) a
sale of the Dallas Real Estate would yield net cash proceeds to Guarantor of
approximately $1,024,100. Obligors agree to promptly provide to
Lender such information regarding the Dallas Real Estate as Lender may
reasonably request from time to time.
10. Pledge of a Portion of
Xxxxxxx’x Partnership Interests by Xxxxxx
Enterprises. Contemporaneously with this Agreement, Xxxxxx
Enterprises shall pledge to Lender 26.46% of Xxxxxx Enterprise’s right, title
and interest in and to the partnership interests of Xxxxxxx. Obligors
acknowledge and agree that such partnership interests shall constitute
additional Collateral for all Obligations (subject to the limitations set forth
in the Guaranty), that all agreements and documents executed and/or delivered in
connection with such pledge shall constitute Loan Documents, and that any breach
of any representation, warranty, covenant or agreement thereunder, and any
default or event of default thereunder, shall each constitute a
Default.
11. Notification of Account
Debtors. Neither Lender’s agreement to forbear hereunder nor
anything else contained in this Agreement shall limit the right of Lender to
notify Customers to make payments directly to Lender with respect to
Accounts. Obligors hereby ratify the right of Lender to send such
notifications to Customers and acknowledge that Lender has been and intends to
continue sending such notifications to Customers.
12. Conditions Precedent to
Lender’s Agreements Hereunder. Lender’s agreements hereunder,
including the obligation to forbear from exercising its remedies with respect to
the Specified Defaults as contemplated hereby, are each conditioned upon (a)
Lender’s receipt of a fully executed original of this Agreement, (b) Lender’s
receipt of a pledge agreement by Xxxxxx Enterprises pursuant to which Lender
receives a perfected, first-priority security interest in 26.46% of the
partnership interests of Xxxxxxx as security for the Guaranty (subject to the
limitations on the Guaranty set forth therein), together with such related
documentation as Lender may reasonably require (which shall include an
acknowledgement and consent of all partners of Xxxxxxx other than Xxxxxx
Enterprises), in each case in form and substance reasonably acceptable to
Lender, (c) Lender’s receipt of a lender’s title insurance policy with respect
to the San Antonio Real Estate, in form, substance and detail satisfactory to
Lender in its discretion, and (d) such other agreements, documents, instruments
and other items as Lender may reasonably require. Obligors hereby
covenant and agree to promptly deliver or cause to be delivered to Lender each
of the foregoing, at Borrower’s expense and in form, substance and detail
reasonably acceptable to Lender.
13. Ratification of Loan
Documents. Borrower hereby restates, ratifies, and reaffirms
each and every term, condition, representation and warranty heretofore made by
it under or in connection with the execution and delivery of the Loan Agreement,
as amended hereby, and the other Loan Documents, as fully as though such
representations and warranties had been made on the date hereof and with
specific reference to this Agreement and the Loan
Documents. Guarantor hereby acknowledges and agrees that the
Guaranty, as amended hereby, remains in full force and effect, subject to no
right of offset, claim or counterclaim, in each case both before and after
giving effect to this Agreement. Guarantor further acknowledges that,
as a result of the amendments to the Guaranty contemplated hereby, the stated
termination date of the Guaranty is no longer in effect and that the Guaranty
shall remain in full force and effect until the Obligations are repaid in full
in cash and the Loan Agreement has terminated.
14. No Other
Changes. Except as expressly modified as set forth herein, the
Loan Agreement and the Guaranty shall be and remain in full force and effect as
originally written, and shall constitute the legal, valid, binding and
enforceable obligation of Borrower and Guarantor, as applicable, to
Lender.
15. Forbearance Fee and
Expenses. In
consideration of the accommodations made by Lender hereunder, Borrower agrees to
pay to Lender (a) on April 30, 2010, or, if earlier, the date on which the
Obligations are repaid in full and the Loan Agreement is terminated, a
forbearance fee of $500 per day (the “Forbearance Fee”), commencing on the date
hereof and continuing until such payment due date, and (b) on demand, all costs
and expenses of Lender in connection with the preparation, execution, delivery
and enforcement of this Agreement and the other Loan Documents and any other
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and out-of-pocket expenses of legal counsel to
Lender. Each daily installment of the Forbearance Fee shall be fully
earned at 1:00 p.m., Oklahoma City, Oklahoma time on each calendar day and shall
not be subject to refund or rebate. Without limiting anything
contained in the Loan Agreement, Borrower hereby irrevocably authorizes Lender
to make one or more revolving loans to Borrower in the amount of such
Forbearance Fee and such costs and expenses as they become due and payable in
order to pay such forbearance fee and such costs and expenses.
16. No Other
Default. To induce Lender to enter into this Agreement,
Borrower hereby represents and warrants that, to Borrower’s knowledge, as of the
date hereof, and after giving effect to the terms hereof, other than the
Specified Defaults, there exists no Default under the Loan Agreement or any of
the other Loan Documents.
17. Release. To
induce Lender to enter into this Agreement, each Obligor (a) acknowledges and
agrees that no right of offset, defense, counterclaim, claim or objection exists
in favor of such Obligor or against Lender arising out of or with respect to the
Loan Agreement, the Guaranty, this Agreement, any other Loan Document, the
Obligations, or any other arrangement or relationship between Lender and any
Obligor, and (b) releases, acquits, remises and forever discharges Lender and
its affiliates and all of their past, present and future officers, directors,
employees, agents, attorneys, representatives, successors and assigns from any
and all claims, demands, actions and causes of action, whether at law or in
equity, whether now accrued or hereafter maturing, and whether known or unknown,
which such Obligor now or hereafter may have by reason of any manner, cause or
things to and including the date of this Agreement with respect to matters
arising out of or with respect to the Loan Agreement, the Guaranty, this
Agreement, the other Loan Documents, the Obligations, or any other arrangement
or relationship between Lender and such Obligor.
18. Lender Not Obligated for
Further Amendments. Each Obligor acknowledges that (a) except
as expressly set forth herein, Lender has not agreed to (and has no obligation
whatsoever to discuss, negotiate or agree to) any restructuring, modification,
amendment, waiver or forbearance with respect to the Obligations or any of the
terms of the Loan Documents, (b) no understanding with respect to any other
restructuring, modification, amendment, waiver or forbearance with respect to
the Obligations or any of the terms of the Loan Documents shall constitute a
legally binding agreement or contract, or have any force or effect whatsoever,
unless and until reduced to writing and signed by authorized representatives of
Borrower and Lender (and, if applicable, Guarantor), and (c) the execution and
delivery of this Agreement has not established any course of dealing among the
parties hereto or created any obligation or agreement of Lender with respect to
any future restructuring, modification, amendment, waiver or forbearance with
respect to the Obligations or any of the terms of the Loan
Documents.
19. This Agreement as a Loan
Document. Each Obligor acknowledges that this Agreement
constitutes a Loan Document and that any breach of any representation, warranty,
covenant or agreement of any Obligor set forth herein shall constitute a
Default.
20. Counterparts. This
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which, when so executed and delivered,
shall be deemed to be an original and all of which counterparts, taken together,
shall constitute but one and the same instrument. Delivery of an
executed counterpart of this Agreement or any other Loan Document by facsimile
or e-mail shall be equally as effective as delivery of an original executed
counterpart of this Agreement or such other Loan Document. Any party
delivering an executed counterpart of this Agreement or any other Loan Document
by facsimile or e-mail also shall deliver an original executed counterpart of
this Agreement or such other Loan Document, but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement or such other Loan Document. To the
fullest extent permitted by applicable law, Borrower and Guarantor each waive
notice of Lender’s acceptance of this Agreement and the other Loan
Documents.
21. Successors and
Assigns. This Agreement shall be binding upon and inure to the
benefit of the successors and permitted assigns of the parties
hereto.
22. Choice of
Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Oklahoma, other than its laws
respecting choice of law.
[SIGNATURES
ON FOLLOWING PAGE]
IN WITNESS WHEREOF, Borrower, Guarantor
and Lender have caused this Forbearance Agreement and Fourth Amendment to Loan
Documents to be duly executed as of the date first above written.
By:
Xxxx X. Xxxxxx, Chief Executive
Officer
XXXX
X. XXXXXX
|
|
FCC,
LLC, d/b/a First Capital
|
By:
Xxx X. Xxxxxx, Senior Vice
President
ACKNOWLEDGMENT
AND AGREEMENT OF VALIDITY GUARANTOR
The
undersigned, a Validity Guarantor in respect of the indebtedness of Borrower to
Lender, hereby (a) acknowledges receipt of the foregoing Forbearance Agreement
and Fourth Amendment to Loan Documents; (b) consents to the terms and
execution thereof; (c) acknowledges that the Obligations of Borrower under
the Loan Agreement may have increased; (d) reaffirms his obligations to Lender
pursuant to the terms of the Validity Agreement to which he is a party; and
(e) acknowledge that Lender may amend, restate, extend, renew or otherwise
modify the Loan Agreement and any indebtedness or agreement of Borrower, or
enter into any agreement or extend additional or other credit accommodations,
without notifying or obtaining the consent of the undersigned and without
impairing the liability of the undersigned under any Validity Agreement for all
of Borrower’s present and future indebtedness to Lender.
X.
XxxXxxxxx Xxxxxx
