August 28, 2009
Exhibit 10.7
August
28, 2009
FCC, LLC
d/b/a First Capital
0000 XX
00xx
Xxxxxx
Xxxxxxxx
Xxxx, Xxxxxxxx 00000
The undersigned, Xxxx X. Xxxxxx
(“Creditor”), is a creditor of the undersigned, Aerogrow International, Inc.
(“Borrower”), whose Liabilities (meaning herein any obligations of Borrower
under any note, agreement, contract of suretyship, guaranty or accommodation,
claim or right of action, and any other obligations of Borrower however and
whenever created, arising or evidenced, whether direct or indirect, through
assignment from third parties, absolute, contingent, or otherwise, now or
hereafter existing, or due or to become due, including all interest which
accrues on any such obligations both before and after the filing by or against
Borrower of a petition under any chapter of Title 11 of the United States
Code, as amended (the “Bankruptcy Code”), together with all collection costs and
attorneys' fees), in favor of Creditor as of the date hereof aggregate $100,000,
are described on Schedule A attached hereto, and may in the future increase
(all such Liabilities of Borrower in favor of Creditor being collectively
referred to herein as the “Junior Claims”).
For
value received, and to induce you to enter into financial transactions with
Borrower, including the making of a loan or loans to it or the entering into
with it of any agreement with regard to the assignment of accounts receivable or
other indebtedness in connection with the sale of goods or rendition of services
made or to be made by Borrower, or to purchase or take by assignment receivables
under any agreement with regard to the assignment of accounts receivable, or to
cause letters of credit to be issued for the account of Borrower (all
Liabilities of Borrower under any such loans and agreements, and all other
Liabilities of Borrower in favor of you, being collectively referred to herein
as the “Senior Claims”), Creditor hereby subordinates and postpones the Junior
Claims to the Senior Claims.
In order to effect and secure such
subordination, Creditor hereby assigns to you all of Creditor's right, title and
interest in and to the Junior Claims and any security held therefor, and will
deliver to you from time to time any and all instruments and documents (endorsed
to you without recourse in the case of negotiable instruments) evidencing such
Junior Claims, or will have entered on such instruments and documents such
subordination legend as you may request, and Creditor will execute such other
instruments and documents as you may from time to time require in connection
therewith. In the event that any Junior Claim is not evidenced by a
negotiable instrument, Creditor hereby agrees that he will obtain an instrument
or document from Borrower evidencing such Junior Claim. In the event
that such debt is not evidenced by a document, it shall nevertheless be deemed
subordinated and assigned by virtue of this Agreement.
Creditor hereby grants to you
irrevocable authority in the place and stead of Creditor and in the name of
Creditor or in your name but for your use and benefit, at any time or times,
after any default under the terms of any of the Senior Claims, in your
discretion to demand, collect, compromise, file proofs of claim with respect to,
receive (by way of dividends or otherwise) and take any and all legal
proceedings for the recovery of any and all moneys due or to become due on
account of the Junior Claims or any thereof, and to vote, give consents and take
any other steps with regard thereto. Any and all moneys so collected
or received by you shall be retained indefeasibly by you for application to the
payment in full of the Senior Claims then outstanding; provided, however, that
upon termination of this Agreement by you and the indefeasible payment to you of
moneys collected or received on account of Junior Claims and on account of
Senior Claims aggregating an amount equivalent to all the matured and unmatured
Senior Claims, you shall pay over to Creditor the excess, if any, of all moneys
so received or collected on the Junior Claims and on the Senior Claims and
release the balance of the Junior Claims and the Senior Claims which are still
unpaid, and deliver to Creditor any and all instruments and documents, without
any warranties of any nature or type whatsoever in respect thereof (endorsed to
Creditor without recourse in the case of negotiable instruments) evidencing such
Junior Claims and Senior Claims. If you receive notice of any claim
adverse to the rights or interests of Creditor in and to either the Junior
Claims or the Senior Claims, or any moneys held by you in respect thereof, you
shall be entitled to retain any and all such moneys, and documents and
instruments evidencing such Junior Claims and Senior Claims without incurring
any liability or debt to Creditor, until the adjudication or final settlement of
the rights of such claimant against Creditor, and Creditor hereby agrees to
indemnify and hold you harmless for any and all liability and expenses incurred
by you and arising from or connected with the assertion of such
claims.
Creditor
hereby releases any lien on or security interest Creditor may have in any of
Borrower’s assets, and Creditor and Borrower acknowledge and agree that the
Junior Claims are and shall remain unsecured by any of Borrower’s assets unless
and until the Senior Claims are repaid in full in cash and any commitment of
yours to provide financing to Borrower is terminated. Creditor hereby
authorizes you to terminate any UCC financing statements naming Creditor as
secured party and Borrower as debtor.
Creditor
further agrees that so long as any Senior Claim remains unpaid, Creditor will
not accept from Borrower any payment on account of, or any security for, any
Junior Claim. In case Borrower shall offer any payment on account of,
or any security for, any Junior Claim, Creditor will direct that the same be
made or delivered to you, and in the event of any moneys and/or security coming
into the hands of Creditor on account of any Junior Claim from any source
whatsoever, Creditor will receive the same solely as your agent in trust for you
and will immediately turn over to you the same, in the form
received. If Creditor shall fail to endorse any instrument for the
payment of money payable to Creditor or to Creditor's order, which has been
turned over to you, you are hereby irrevocably constituted and appointed
attorney-in-fact for Creditor with full power to make any such endorsement, and
with full power of substitution.
At
your request, Creditor hereby further agrees (i) to make notations on
Creditor's books to the effect that such Junior Claim is subject to the
provisions of this Agreement, (ii) to give you, upon request from time to time,
access to Creditor's books with respect to such accounts and the right to make
copies of such books, and (iii) to furnish you, upon request from time to time,
with statements of such accounts between Creditor and Borrower.
Creditor
hereby represents to you that (i) Borrower is now indebted to Creditor,
without counterclaim, defense or offset on the Junior Claims described in
Schedule A, (ii) Creditor has not heretofore assigned, transferred, created
a security interest in, or otherwise encumbered such Junior Claims nor executed
or delivered any other instrument or document adversely affecting the Junior
Claims, (iii) the Junior Claims are not represented by any instruments or
documents except such as have been endorsed or assigned and delivered to you, or
which have been marked with such subordination legend as you have requested, and
(iv) Creditor is not insolvent within any meaning of that term as of the date
hereof. Creditor agrees with you that Creditor will not assign,
transfer, create a security interest in, or otherwise encumber, or subordinate
in favor of any other creditor of Borrower, any Junior Claim and that any Junior
Claim now or hereafter existing will not be represented by any instruments or
documents other than those which have been endorsed or assigned and delivered to
you or marked with such subordination legend as you have requested.
All moneys received by you on account
of any Junior Claims shall belong to you and shall be retained indefeasibly by
you for application to the payment of the Senior Claims.
For value received, and to induce you
to enter into financial transactions with Borrower as described above, Borrower
agrees that it will not pay or disburse any money or transfer any property to
Creditor in payment of any of the Junior Claims until the Senior Claims are
repaid in full and all financing arrangements between you and Borrower are
terminated, and Borrower agrees that any breach or termination of this Agreement
on Creditor's or Borrower's part shall constitute a default under all of the
Senior Claims with the same force and effect as if this Agreement were
incorporated into any such Senior Claims, and you may, without notice or demand
declare all of the Senior Claims immediately due and payable.
This Agreement is a continuing
agreement and, unless you shall have specifically consented in writing to its
revocation, shall remain in full force and effect in all respects whether or not
Borrower shall at any time be indebted to you. If, after the payment
of all Senior Claims, Borrower thereafter again becomes liable to you on account
of any new Senior Claims, this Agreement shall thereupon in all respects become
effective with respect to any such new Senior Claims without the necessity of
any further act or understanding by Borrower and/or you.
If Creditor receives any payment on
account of, or any security for, any Junior Claims at a time when there are no
Senior Claims outstanding, Creditor will immediately notify you in writing of
the receipt thereof. In the event that Creditor fails to so notify
you, and new Senior Claims are thereafter created, and if Borrower defaults with
respect to the payment or performance of such new Senior Claims, in addition to
and not in limitation of any other rights or remedies available to you
hereunder, you shall have the right to receive and Creditor will immediately pay
to you an amount equivalent to any such payment or the value of any such
security received by Creditor and not reported to you.
With or without notice to or further
assent from Creditor, you may at any time or times, either prior to or after any
default on the part of Borrower with respect to either the Junior Claims or the
Senior Claims: (a) advance or refuse to advance additional
credit to Borrower, (b) extend, refuse to extend, renew or change the
Senior Claims or any thereof and waive any default under any thereof, and
modify, rescind or waive any provision of any related agreement or collateral
undertaking, including, but not by way of limitation, any provision relating to
acceleration of maturity, (c) fail to set off any or all accrued balances
or deposit balances or any part thereof on your books in favor of Borrower and
release the same, (d) release, exchange, fail to resort to, or realize
upon, or apply any security or any part thereof held by or available to you for
the Senior Claims, and (e) generally deal with Borrower in such manner as
you may see fit, all without impairing or affecting your rights and remedies
under this Agreement. Each such action and each such failure to act
on your part shall be deemed to be at the request of Creditor and in reliance
upon this Agreement. Creditor hereby waives notice of the acceptance
of this Agreement by you and of the effecting by you of any loans or extensions
of credit to Borrower, and further waives notice of any default at any time or
times on the part of Borrower. This Agreement is not to be affected
or impaired by any extension, renewal, release, arrangement, or composition
which you may grant Borrower.
This Agreement revokes and supersedes
any prior agreement of subordination or assignment with respect to the Junior
Claims which may have been executed by Creditor in your favor.
No delay or failure on your part in
exercising any right or remedy shall operate as a waiver thereof; and no single
or partial exercise of any right or remedy shall preclude other or further
exercises thereof or the exercise of any right or remedy; and no notice to or
demand on Borrower or Creditor shall be deemed a waiver of any obligation or
duty of Borrower or Creditor or of your right to take further action without
notice or demand; nor in any event shall any modification, alteration or waiver
of any of the provisions hereof be effective unless in writing and signed for or
on behalf of you and then only in the specific instance for which
given.
ALL PARTIES TO THIS AGREEMENT WAIVE
TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR RELATING TO THE JUNIOR CLAIMS
OR THIS AGREEMENT, AND CREDITOR WAIVES ALL RIGHTS TO INTERPOSE THEREIN
COUNTERCLAIMS OR OFFSETS OF ANY KIND.
Your
rights and privileges hereunder shall inure to the benefit of your successors
and assigns, including without limitation any substitute or replacement
financier of Borrower, and this Agreement shall be binding upon the Creditor's
and Borrower's respective heirs and personal representatives and successors and
assigns. Creditor and Borrower waive notice of assignment
hereof.
This
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of Oklahoma. Wherever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
Notwithstanding anything to the
contrary contained in this Agreement, Borrower may pay, and Creditor may take
and receive, regularly scheduled payments of principal and interest on the
Junior Claims so long as (a) no default or event of default exists under that
certain Loan and Security Agreement dated June 23, 2008 between Borrower and
you, as amended, modified and/or restated from time to time (the “Loan
Agreement”), or would otherwise be caused thereby; (b) after giving effect to
the proposed payment, Borrower would have unused borrowing availability under
the Loan Agreement of at least $250,000; and (c) at least five (5) business days
prior to making any such payment, Borrower shall deliver to you a certificate of
an officer of Borrower (i) setting forth the amount of and the date of such
proposed payment, (ii) certifying that no default or event of default exists
under the Loan Agreement, and (iii) setting forth calculations, in detail
reasonably satisfactory to you, demonstrating compliance with the foregoing
clauses (a) and (b).
IN WITNESS WHEREOF, Creditor and
Borrower have executed this Agreement as of the 1st day
of September, 2009.
CREDITOR:
XXXX X. XXXXXX
By: /s/ Xxxx X.
Xxxxxx
BORROWER:
By: /s/ X. XxxXxxxxx
Xxxxxx
Name: X.
XxxXxxxxx Xxxxxx
Title: Chief
Financial Officer
The foregoing Subordination Agreement
is accepted in Oklahoma City, Oklahoma this 1st day
of September, 2009.
| FCC, LLC d/b/a First Capital | |
| By: | /s/ Xxx X. Xxxxxx |
| Xxx X. Xxxxxx, | |
| Senior Vice President | |
Schedule A
Promissory
Note dated August 28, 2009, in the amount of $100,000 executed by AeroGrow
International, Inc. and payable to Xxxx X. Xxxxxx.
