Exhibit 10.1
 
FORBEARANCE AGREEMENT AND FIFTH AMENDMENT
TO LOAN DOCUMENTS

THIS FORBEARANCE AGREEMENT AND FIFTH AMENDMENT TO LOAN DOCUMENTS (this
“Agreement”) is made and entered into as of the 29th day of April, 2010 among
AEROGROW INTERNATIONAL, INC., a Nevada corporation (“Borrower”), JACK J. WALKER
(“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 $1,500,000 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.

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:
 
 
 

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(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) May 21, 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.

 
 
 

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(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 $1,821,220.75.

 
(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.           New Definitions.  The Loan Agreement is amended by inserting the
following new definitions in appropriate alphabetical order in Section 1:

“Investor Intercreditor Agreement” means a Subordination and Intercreditor
Agreement in form and substance acceptable to Lender among Lender, Borrower and
GVC Capital LLC, as agent for the holders of the Investor Subordinated Debt.

“Investor Subordinated Debt” means the indebtedness of Borrower evidenced by
Borrower’s Subordinated Secured 8% Convertible Promissory Notes in an aggregate
principal amount not to exceed $8,400,000.

6.           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) $2,000,000 through and including the date on
which the Investor Subordinated Debt is incurred, and (b) $1,000,000 from and
after the date on which the Investor Subordinated Debt is incurred.

7.           Permitted Liens.  The Loan Agreement is amended by deleting the
definition of “Permitted Liens” set forth in Section 1 and substituting the
following in lieu thereof:

 
 

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“Permitted Liens” means (a) Liens or charges for current taxes, assessments or
other governmental charges which are not delinquent or remain payable without
any penalty, or the validity of which is contested in good faith by appropriate
proceedings upon stay of execution of the enforcement thereof and for which
appropriate reserves have been established in accordance with GAAP; (b) deposits
or pledges to secure (i) statutory obligations, (ii) surety or appeal bonds, or
(iii) bonds for release of attachment, stay of execution or injunction; (c)
statutory Liens on property arising in the ordinary course of business which, in
the aggregate, do not materially impair the use of such property or materially
detract from the value of such property; (d) Liens existing on the Agreement
Date and described on Item 3 of the Schedule; (e) Liens on Equipment securing
all or part of the purchase price of such Equipment; provided, however, that (i)
such Lien is created contemporaneously with the acquisition of such Equipment,
(ii) such Lien attaches only to the specific items of Equipment so acquired, and
(iii) such Lien secures only the indebtedness incurred to acquire such
Equipment; (f) so long as the Investor Intercreditor Agreement is in full force
and effect and no default, event of default or dispute exists thereunder, Liens
in favor of GVC Capital LLC, as agent for the holders of the Investor
Subordinated Debt, and (g) Liens in favor of Lender.

8.           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 through and including the date on which the Investor Subordinated
Debt is incurred, and $1,000,000 thereafter, and

 
 
(2)
60% of the dollar value (determined at the lower of cost or market value) of
Eligible Inventory; plus

 
 
 

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(C)
$600,000 through and including the date on which the Investor Subordinated Debt
is incurred, and $0 thereafter;

 
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.

9.            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.

10.           Investor Subordinated Debt.  Borrower hereby covenants and agrees
in favor of Lender that (a) Borrower shall not incur the Investor Subordinated
Debt unless and until Borrower has provided to Lender a fully executed original
of the Investor Intercreditor Agreement, with all exhibits completed, and (b)
Borrower shall cause the proceeds of the Investor Subordinated Debt to be paid
to Lender for application to the Obligations to the extent necessary to cause
Borrower to be in compliance with the borrowing limitations set forth in the
Loan Agreement, including the amendments contained herein.

11.           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.

12.           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.
 
 
 

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13.          Forbearance Fee and Expenses.  In consideration of the
accommodations made by Lender hereunder, Borrower agrees to pay to Lender (a) on
May 21, 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 February 15, 2010 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.

14.           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.

15.           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.

16.           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.
 
 
 

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17.           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.

18.           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.

19.           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the successors and permitted assigns of the parties
hereto.

20.           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]
 
 
 
 

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IN WITNESS WHEREOF, Borrower, Guarantor and Lender have caused this Forbearance
Agreement and Fifth Amendment to Loan Documents to be duly executed as of the
date first above written.

AEROGROW INTERNATIONAL, INC.

By:  /s/ Jack J. Walker                                
                                                      
Jack J. Walker, Chief Executive Officer

  /s/ Jack J. Walker                                      
                                                                
JACK J. WALKER

 
FCC, LLC, d/b/a First Capital

By:   /s/ Lee E. Elmore                                
                                                      
Lee E. Elmore, 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 Fifth 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.

/s/ H. MacGregor
Clarke                                                                
H. MacGregor Clarke
 
 
 
 

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