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 3100 Arapahoe, Suite 301, Boulder
Colorado 80303 (“ Lender ”);
AeroGrow
International, Inc. , a Nevada corporation with a principal
place of business located at 6075 Longbow Drive, Boulder Colorado
80301 (“ Borrower ”); and
Jack
J. Walker , an individual with a residence located at 1270
Old Tale Road, Boulder Colorado 80303 (“ Walker
”).
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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B.
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Walker
and Borrower desire to set forth herein terms and conditions
pursuant to which Walker 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
”).
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 . Walker 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:
3.1
Service Fee . In consideration of Walker’s
acting as a co-maker on the FNB Note, upon execution of the FNB
Note Borrower shall pay to Walker, 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 Walker is
required to make payments on the FNB Note due to Borrower’s
default thereon, (a) Walker 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 Walker; and (b)
Borrower shall be obligated to immediately repay to Walker any
amounts expended by Walker 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 . Walker’s 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 Walker or
First National Bank to release Walker 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 Re
