aero-8k6242008.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): June 24, 2008
AEROGROW
INTERNATIONAL, INC.
(Exact
name of registrant as specified in its charter)
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Nevada
(State
or other jurisdiction of incorporation or organization)
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000-50888
(Commission
File Number)
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46-0510685
(I.R.S.
Employer Identification No.)
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6075
Longbow Drive, Suite 200
Boulder,
Colorado 80301
(Address
and telephone number of principal executive offices) (Zip Code)
(303)
444-7755
(Registrant's
telephone number, including area code)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Section 1-Registrant’s
Business and Operations
Item
1.01 Entry into a Material Definitive Agreement.
The information reported under Item
2.03 is incorporated herein by reference.
Section 2 – Financial
Information
Item
2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
On June
24, 2008, AeroGrow International, Inc., a Nevada corporation (“AeroGrow” or the
“Company”) entered into a Loan and Security Agreement with FCC, LLC, d/b/a First
Capital (“First Capital”), for a revolving credit facility in the amount of
Twelve Million Dollars ($12,000,000) (the “Revolving Credit
Facility”). As previously disclosed in the Company’s Current Report
on Form 8-K filed with the U.S. Securities and Exchange Commission on May 23,
2008, the Revolving Credit Facility will have a maturity date of two years, with
one-year renewals thereafter. The Revolving Credit Facility will bear
interest at a rate of prime plus 2%, with the interest rate adjusting to prime
plus 1.5% as of January 1, 2009, and the Company is obligated to pay a minimum
monthly interest that would have been earned on an outstanding principal amount
of $3,000,000. Continued availability of the Revolving Credit
Facility will also be subject to AeroGrow’s compliance with customary negative
covenants relating to minimum tangible net worth, debt to tangible net worth
ratios and minimum earnings to debt service ratios. The purpose of
the Revolving Credit Facility is to pay off the Company’s current account
receivables factoring facility with Benefactor Funding Corp., and to provide
additional working capital to fund AeroGrow’s growth. As collateral
for the Revolving Credit Facility, the Company will grant FCC a first priority
security interest in all of its assets, including, but not limited to, accounts
receivable, inventory, and equipment. For further information
regarding the Revolving Credit Facility, please see the Loan and Security
Agreement attached hereto as Exhibit 10.1, incorporated herein by
reference.
In connection with the Loan and
Security Agreement, Jervis B. Perkins, the Company’s President and Chief
Executive Officer, and H. MacGregor Clarke, the Company’s Chief Financial
Officer, each entered into a Validity Agreement with the Company and First
Capital, whereby Mr. Perkins and Mr. Clarke made certain assurances to First
Capital that each would not willfully and intentionally make any untrue
statement of a material fact relating to the collateral securing the Revolving
Credit Facility or the Revolving Credit Facility itself, so as to constitute a
fraud in the State of Colorado. For further information, please see
the Validity Agreements, attached hereto as Exhibits 10.2 and 10.3,
respectively, and incorporated herein by reference.
In order to proceed with the Revolving
Credit Facility with First Capital, AeroGrow terminated its prior factoring
relationship with Benefactor Funding Corp. (“BFC”). In connection
with the termination of the factoring relationship with BFC, AeroGrow, BFC and
First Capital entered into an Agreement on June 24, 2008 (the “BFC Agreement”),
whereby the Company agreed to provide BFC with a final payoff in the amount of
$312,527.23 (the “Payoff"). Upon BFC’s receipt of the Payoff and the
issuance of certain Letters of Credit in BFC’s favor (discussed below), it
agreed to release all of its security interests and liens on AeroGrow’s
assets. In addition, the Company agreed to indemnify BFC and hold BFC
harmless from and against all claims arising out of the parties’ prior factoring
agreement or arising out of the assertion of any avoidance claim under the
relevant bankruptcy or insolvency statutes relating to a payment received by BFC
on behalf of any of AeroGrow’s account debtors. Please see Exhibit
10.4, attached hereto and incorporation herein by reference, for further
information regarding the BFC Agreement.
Pursuant to the terms of the BFC
Agreement, on June 25, 2008, at the Company’s request, First National Bank
issued an Irrevocable Standby Letter of Credit in favor of BFC in the amount of
$343,092.34 (the “LNT Letter of Credit”). The LNT Letter of Credit
may be drawn upon by BFC in the event that a final settlement is approved or
judgment reached obligating BFC to pay, on account of a claim asserted against
BFC relating to a payment received by BFC from Linens Holding Co., Linens ‘n
Things, Inc. or any U.S. affiliate thereof (“LNT”), which is subject to a state
or federal insolvency statute or similar common law proceeding, and AeroGrow
failed to indemnify BFC for such payment under its indemnification obligation
under the BFC Agreement within 10 days of a demand for
indemnification. In addition, on June 25, 2008, at the Company’s
request, First National Bank issued an Irrevocable Standby Letter of Credit in
favor of BFC in the amount of $38,193.66 (the “LNT Canada Letter of
Credit”). The LNT Canada Letter of Credit may be drawn upon under the
same terms as the LNT Letter of Credit, except that it relates to a payment
received by BFC from Linens ‘n Things Canada Corp. (“LNT Canada”), and
automatically decreases to $1,467.75 on July 30, 2008. The LNT Letter
of Credit has automatically renewing 1-year terms, however, under the BFC
Agreement, when applicable statutes of limitation have run related to a
potential avoidance claim by LNT, AeroGrow may demand that Benefactor consent to
the immediate termination of the LNT Letter of Credit. The LNT Canada
Letter of Credit also has automatically renewing 1-year terms, however, in the
event that there is no filing under any applicable bankruptcy, insolvency or
other debtor relief statutes within 90 days of the date of the BFC Agreement,
AeroGrow may demand that Benefactor consent to the immediate termination of the
LNT Canada Letter of Credit. For further information regarding the
LNT Letter of Credit and LNT Canada Letter of Credit, please see Exhibits 10.5
and 10.6, respectively, attached hereto and incorporated herein by
reference.
Section
9- Financial Statements and Exhibits
Item
9.01 Financial Statements and Exhibits.
Exhibit
No Exhibit
Description
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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AEROGROW
INTERNATIONAL, INC.
a
Nevada corporation
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Dated: June
30, 2008
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/s/ Jervis
B.
Perkins
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Jervis
B. Perkins
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President
and Chief Executive Officer
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