ex10-1.htm


    Exhibit
10.1

     

    FIRST
AMENDMENT TO LOAN AND SECURITY AGREEMENT

    


    THIS FIRST AMENDMENT TO LOAN AND
SECURITY AGREEMENT (this “Amendment”) is made and entered into as of the 31st day of
July, 2008 (the “Amendment Date”), between AEROGROW INTERNATIONAL, INC.,
a Nevada corporation (“Borrower”) 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, modified or supplemented from
time to time, the “Loan Agreement”); and

    


    WHEREAS,
the parties desire to amend the Agreement 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.  

            	
              All
      capitalized terms used herein and not otherwise expressly defined herein
      shall have the respective meanings given to such terms in the
      Agreement.

            


    

    


    
      	
              2.  

            	
              The
      Agreement is amended by deleting Item
      1(a)(ii)(B) of the Schedule and substituting the following in lieu
      thereof:

            


    

    


    (B)           the
lesser of:

     

    
      	 	(1)	$5,000,000,
	 	 	 
	
               
      

            	
              (2)

            	
              50%
      of the dollar value (determined at the lower of cost or market value) of
      Eligible Inventory.

            


    

     

    
      	
               
      

            	
              provided, however,
      that the aggregate principal amount available to be borrowed
      against Eligible Inventory under this clause (B) (i) shall not exceed 85%
      of the Obligations from July 1, 2008 through and including September 15,
      2008; (ii) shall not exceed 60% of the Obligations from September 16, 2008
      through and including September 30, 2008; and (iii) shall not exceed 40%
      of the Obligations beginning October 1, 2008 and at all times thereafter,
      except that during the months of July, August and September of each
      calendar year (beginning with 2009 calendar year) the aggregate principal
      amount available to be borrowed against Eligible Inventory under this
      clause (B) (i) shall not exceed 60% of the
  Obligations;

            


    

    


    
      	
              3.  

            	
              The
      Agreement is amended by deleting Item
      8 of the Schedule and substituting the following in lieu
      thereof:

            


    

    


    Interest
Margin:     (i)
So long as Borrower maintains a ratio of Indebtedness to Tangible Net Worth less
than or equal to the following table, the Interest Margin shall be
2.0%.

    


    
      	
              Month
      Ending

            	
              Ratio

            
	
              09/30/08

              (measured
      quarterly)

            	
              5.75x

            
	
              12/31/08

              (measured
      quarterly)

            	
              3.00x

            
	
              03/31/09
      and

              thereafter

              (measured
      quarterly on 3/31/09 and monthly thereafter)

            	
               

              2.25x

            


    

    


    In
addition, so long as Borrower maintains a ratio of Indebtedness to Tangible Net
Worth less than or equal to the above table, AND Borrower is
otherwise in compliance with all terms and conditions of the Agreement as of
12/31/08, then the Interest Margin will reduce to 1.50%.  The 12/31/08
adjustment, in Lender’s sole discretion, shall be based on preliminary year-end
financial statements provided by Borrower.  Should the results of
Borrower’s year-end audited financial statements show that Borrower is not in
compliance with all terms and conditions of the Agreement (but Borrower is
otherwise in compliance with the above table), the Interest Margin shall
immediately and automatically revert to 2.0% as of 1/1/09, and Borrower will
repay to Lender, on demand, all amounts due thereon.

    


    (ii)  If Borrower fails, at
any time, to maintain a ratio of Indebtedness to Tangible Net Worth less than or
equal to the table set forth in subsection (i) above, the Interest Margin shall
be 3.5%.

    


    (iii)  Nothing in this Item 8 of
the Schedule shall be construed to limit or waive Lender’s option to
increase the rate of interest on the unpaid principal balance of the Obligations
whenever there is a Default under the Agreement (as more fully described in
Section 3(b) of the Agreement).

    


    
      	
              4.  

            	
              The
      Agreement is amended by deleting Item
      21(b) of the Schedule and substituting the following in lieu
      thereof:

            


    

    


    
      	
              (b)         
      

            	
              Borrower
      shall maintain a Tangible Net Worth, plus the outstanding principal
      balance of Subordinated Debt, as
follows:

            


    

    


    
      	
              Month
      Ending

            	
              Amount

            
	
              06/30/08

              (measured
      quarterly)

            	
              $1,750,000

            
	
              09/30/08

              (measured
      quarterly)

            	
              $2,500,000

            
	
              12/31/08

              (measured
      quarterly)

            	
              $5,000,000

            
	
              3/31/09
      and

              thereafter

              (measured
      quarterly on 3/31/09 and monthly therafter)

            	
               

              $5,500,000

            


    

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    As used
herein, “Tangible Net Worth” means, as of any date, the total assets of Borrower
minus the total liabilities of Borrower calculated in conformity with GAAP, less
all amounts due from Borrower’s Affiliates and the amount of all intangible
items reflected therein, including all unamortized debt discount and expense,
unamortized research and development expense, unamortized deferred charges,
goodwill, intellectual property, unamortized excess cost of investments in
subsidiaries over equity at dates of acquisition, and all similar items which
should properly be treated as intangibles in accordance with GAAP.

    


    
      	
              5.  

            	
              The
      Agreement is amended by deleting Item
      21(c) of the Schedule and substituting the following in lieu
      thereof:

            


    

    


    (c)           Borrower
shall maintain a ratio of Indebtedness to Tangible Net Worth less than or
equal to the following:

     

    
      	
              Month
      Ending

            	
              Ratio

            
	
              06/30/08

              (measured
      quarterly)

            	
              3.75x

            
	
              09/30/08

              (measured
      quarterly)

            	
              7.00x

            
	
              12/31/08

              (measured
      quarterly)

            	
              4.00x

            
	
              03/31/09
      and

              thereafter

              (measured
      quarterly on 3/31/09 and monthly thereafter)

            	
               

              3.25x

            


    

    


    


    
      	
              6.  

            	
              To
      induce Lender to enter into this Amendment, Borrower hereby represents and
      warrants that, as of the date hereof, and after giving effect to the terms
      hereof, there exists no Default under the Agreement or any of the other
      Loan Documents.

            


    

    


    
      	
              7.  

            	
              In
      consideration of the modification of the Agreement, and to compensate
      Lender for underwriting the credit accommodations described in this
      Amendment, Borrower agrees to pay Lender a fee in the amount of $25,000 on
      the date hereof.  In the event that the amount borrowed against
      Eligible Inventory under Item
      1(a)(ii)(B) of the Schedule exceeds 80% of the Obligations at any
      time during the period of July 1, 2008 through and including September 15,
      2008, then Borrower agrees to pay Lender a one-time fee in the amount of
      $10,000 within five Business Days of Lender’s demand.  Borrower
      hereby authorizes Lender to charge such foregoing amounts to the Borrower
      as revolving loans under the Agreement.  Such fees are fully
      earned on the date hereof and are not subject to refund or
      rebate.  Such fees are fees for services and are not interest or
      a charge for the use of money.

            


    

    


    
      	
              8.  

            	
              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 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 Amendment and the Loan
Documents.

            


    

    


    
      	
              9.  

            	
              Except
      as set forth herein, the Agreement shall be and remain in full force and
      effect as originally written, and shall constitute the legal, valid,
      binding and enforceable obligation of Borrower to
  Lender.

            


    

    


    
      	
              10.  

            	
              To
      induce Lender to enter into this Amendment, Borrower hereby releases,
      acquits and forever discharges Lender, and Lender’s officers, directors,
      agents, employees, successors and assigns, from all liabilities, claims,
      demands, actions or causes of action of any kind (if any there be),
      whether absolute or contingent, due or to become due, disputed or
      undisputed, liquidated or unliquidated, at law or in equity, known or
      unknown, that Borrower now has or ever has had against Lender, whether
      arising under or in connection with the Agreement or
    otherwise

            


    

    


    
      	
              11.  

            	
              This
      Amendment 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.

            


    

    


    
      	
              12.  

            	
              This
      Amendment shall be binding upon and inure to the benefit of the successors
      and permitted assigns of the parties
hereto.

            


    

    


    
      	
              13.  

            	
              This
      Amendment shall be governed by, and construed in accordance with, the laws
      of the State of Oklahoma, other than its laws respecting choice of
      law.

            


    

    


    IN WITNESS WHEREOF, Borrower and Lender
have caused this Amendment to be duly executed as of the date first above
written.

    


    


    AEROGROW INTERNATIONAL,
INC.

    


    By:  /s/ H. MacGregor
Clarke                  
                                                                                     

    Greg Clarke, CFO

    


    


    FCC, LLC d/b/a FIRST
CAPITAL

    


    By:  /s/ Lee E.
Elmore                                
                                                                                     

    Lee E. Elmore, Senior Vice
President

    


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    


    The
undersigned hereby acknowledge, consent and agree to the foregoing Amendment and
agree his respective Validity Agreement or Limited Guaranty of Individual (as
applicable and as may be amended from time to time) executed by the undersigned
in connection with the Agreement remains in full force and effect
notwithstanding the modification of the Agreement pursuant to the foregoing
Amendment, subject to no right of offset, claim or counterclaim.

     

    


    /s/ Jack J.
Walker                                                                                     


    Jack J.
Walker

    


    /s/ Jervis B.
Perkins                                                                            

    Jervis
Perkins

    


    /s/ H. MacGregor
Clarke                                                               

    Greg
Clarke