Document:

ex4-1.htm

Exhibit 4.1

 

 

THIS SECURED PROMISSORY NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

 

	No. [2012CC-__]   	
U.S.  $_____________

Original Issue Date:  September __, 2012

 

 SECURED 15% PROMISSORY NOTE

DUE November 1, 2013

THIS PROMISSORY NOTE is one of a duly authorized issue of  Secured Promissory Notes of  AEROGROW INTERNATIONAL, INC., a Nevada corporation, (the “Company”), designated as its Series 2012CC  Secured 15% Promissory Notes (the “Promissory Notes”) due on November 1, 2013 (the “Maturity Date”), in an aggregate principal amount of up to $1.75 million plus accrued but unpaid interest.

FOR VALUE RECEIVED, the Company promises to pay to ______________, the registered holder hereof (the "Holder"), the principal sum of ______________ and 00/100  Dollars (US $_________)  and to pay interest on the principal sum outstanding from time to time in arrears at the rate of 15% per annum, accruing from September __, 2012 (“Issue Date”) and payable in accordance with Section 4 hereof.  Accrual of interest shall commence on the first day to occur after the Issue Date and shall continue to accrue on a daily basis until payment in full of the principal sum has been made or duly provided for.

The Company shall pay principal and accrued interest on or before the Maturity Date.

This Promissory Note is being issued pursuant to the terms of the Subscription Agreement (the “Subscription Agreement”), to which the Company and the Holder (or the Holder’s predecessor in interest) are parties.  Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Subscription Agreement.

This Promissory Note is subject to the following additional provisions.

Section 1.                Collateral, and Pari Passu.

This Promissory Note is one of a series of Promissory Notes known as the Series 2012CC Secured 15% Promissory Notes in an aggregate principal amount of up to $1.75 million plus accrued but unpaid interest.  No payments will be made to the holder of this Promissory Note unless a payment is made with respect to all other Promissory Notes of the Series determined in accordance with the Agreement Among Lenders and the Escrow and Account Control Agreement governing the right to payments under this Note and other Notes of this Series.  Upon liquidation, this Promissory Note will be treated in pari passu with all other Promissory Notes of the Series.

The repayment of this Promissory Note is secured by an assignment of a portion of the Company’s credit card receivables.  The security interest is held under an Escrow and Account Control Agreement dated September __, 2012 for the benefit of all holders of Promissory Notes issued as part of this Series.  The rights of the Note holders under the Escrow and Account Control Agreement are further subject to the provisions of an Agreement Among Lenders executed concurrently therewith.

 

  

  

  

 

Section 2.                No Sale or Transfer.  This Promissory Note may not be sold, transferred, assigned, hypothecated or divided into two or more Promissory Notes of smaller denominations except to the extent such sale, transfer, assignment, hypothecation or division is in compliance with federal and applicable state securities laws, the compliance with which must be established to the reasonable satisfaction of the Company.

Section 3.                Limitations on Debt.  Until all Promissory Notes issued in this Series are repaid in full or converted into shares of Common Stock in accordance with their terms, the Company may not create, incur, assume, or suffer to exist any other indebtedness, except for (a) indebtedness existing on the date hereof, together with any renewals, extensions, refinancings, substitution or modifications thereof, (b) indebtedness that is junior or subordinate to the Promissory Notes and the collateral given to secure the repayment of same, and (c) indebtedness incurred in the ordinary course of business.

Section 4.                Provisions Regarding Payment of Interest and Principal.     The Company will enter into an Escrow and Account Control Agreement with First Western Trust Bank pursuant to which all Company credit card receipts will be paid directly into the account and 20% of such receipts will be paid bi-weekly to the holders of the Series 2012CC Notes.  Payments will first be applied to accrued and unpaid interest, with the balance to outstanding principal. If not paid previously, all interest will be payable, in cash, to the Holder at the Maturity Date.

           Section 5.                  (a)           “Event of Default” wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

(i)           Any default in the payment of the principal of or interest on this Promissory Note as and when the same shall become due and payable, (whether on the Maturity Date or by acceleration or otherwise);

 

(ii)          The Company shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of, this Promissory Note, the Escrow and Account Control Agreement or any other agreement between the Company and the holder hereof, and such failure or breach shall not have been remedied within 30 days after the date on which notice of such failure or breach shall have been given;

(iii)         The Company shall commence a voluntary case under the United States Bankruptcy Code or insolvency laws as now or hereafter in effect or any successor thereto (the “Bankruptcy Code”); or an involuntary case is commenced against the Company under the Bankruptcy Code and the petition is not controverted within 30 days, or is not dismissed within 60 days, after commencement of such involuntary case; or a “custodian” (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or any substantial part of the property of the Company or the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or there is commenced against the Company any such proceeding which remains undismissed for a period of 60 days; or the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 days; or the Company makes a general assignment for the benefit of creditors; or the Company shall fail to pay, or shall state that it is unable to pay its debts generally as they become due; or the Company shall call a meeting of all of its creditors with a view to arranging a composition or adjustment of its debts; or the Company shall by any act or failure to act indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Company for the purpose of effecting any of the foregoing.

 

  

  

  

(b)               Remedies.  The Holder, together with all other holders of Promissory Notes based on a majority vote by principal amount of the Holders of all other Promissory Notes (a “Majority of the Holders”), may declare a default under Section 5(a)(i) upon not less than 30 days’ written notice to the Company.  If the Company fails to cure an Event of Default within such period (or if the cure cannot be reasonably completed within such period, commence the cure of the Event of Default and diligently pursue such cure), then the principal amount hereof together with all accrued and unpaid interest shall accrue interest at the rate of seventeen percent (17%), and a Majority of the Holders may:

Declare all amounts due under the Promissory Notes immediately due and owing and exercise all rights with respect thereto under the Escrow and Account Control Agreement or permitted by law;

Apply to a court with its seat in Colorado that has jurisdiction over the Company for the appointment of a receiver to manage the assets and operations of the Company;

Assert any other remedy available at law or in equity.

            Section 6.                Prepayment.  The Company may prepay this Promissory Note in whole or in part at any time prior to the Maturity Date.

Section 7.                Definitions.  For the purposes hereof, the following terms shall have the following meanings:

“Business Day” means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of Colorado are authorized or required by law or other government action to close.

“Company” means AeroGrow International, Inc., a Nevada corporation.

“Promissory Notes” means the Promissory Notes, or any of them, as the context may require.

“Holder” means any Person who is a registered holder of this Promissory Note as listed in the books of the Company.

“Majority of the Holders” is as defined in Section 5(b).

“Material Adverse Effect” means a material adverse effect upon the business, operations, properties, assets or condition (financial or otherwise) of the Company taken as a whole.

“Maturity Date” means the date defined in the first paragraph or (if earlier) the date of any prepayment or acceleration.

“Original Issue Date” shall mean the date this Promissory Note is purchased by the initial holder.

“Person” means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency.

Section 8.                Reserved.

Section 9.                No Impairment.  Except as expressly provided herein, no provision of this Promissory Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Promissory Note at the time, place, and rate, and in the coin or currency, herein prescribed.  This Promissory Note is a direct obligation of the Company.

 

  

  

  

Section 10.              No Rights as a Shareholder.  This Promissory Note shall not entitle the Holder to any of the rights of a stockholder of the Company, including without limitation, the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of stockholders or any other proceedings.

Section 11.              Limitation of Recourse.  No recourse shall be had for the payment of the principal of, or the interest on, this Promissory Note, or for any claim based hereon, or otherwise in respect hereof, against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released.

Section 12.              Form of Payments.  All payments contemplated hereby to be made “in cash” shall be made in immediately available good funds of United States of America currency by wire transfer to an account designated in writing by the Holder to the Company (which account may be changed by notice similarly given) or by a bank check issued by First Western Trust Bank, at the option of the Holder.  All payments of cash to the Holder as contemplated hereby shall be made to the Holder at the address last appearing on the Promissory Note Register of the Company as designated in writing by the Holder from time to time; except that the Holder can designate, by notice to the Company, a different delivery address for any one or more specific payments or deliveries.

Section 13.              Investment Intent.  The Holder of the Promissory Note, by acceptance hereof, agrees that this Promissory Note is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Promissory Note except under circumstances which will not result in a violation of the Act or any applicable state Blue Sky or foreign laws or similar laws relating to the sale of securities.

Section 14.              Denominations.  The Promissory Notes will initially be issued in denominations determined by the Company, but are exchangeable for an equal aggregate principal amount of Promissory Notes of different denominations, as requested by the Holder surrendering the same.  No service charge will be made for such registration or transfer or exchange.

Section 15.              Income Tax Withholding.  The Company shall be entitled to withhold from all payments of principal of, and interest on, this Promissory Note any amounts required to be withheld under the applicable provisions of the United States income tax laws or other applicable laws at the time of such payments, and Holder shall execute and deliver all required documentation in connection therewith.

Section 16               Limitation on Transfer.  This Promissory Note has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended (the "Act"), and other applicable state and foreign securities laws and the terms of the Subscription Agreement.  In the event of any proposed transfer of this Promissory Note, the Company may require, prior to issuance of a new Promissory Note in the name of such other person, that it receive reasonable transfer documentation that is sufficient to evidence that such proposed transfer complies with the Act and other applicable state and foreign securities laws and the terms of the Subscription Agreement.  Prior to due presentment for transfer of this Promissory Note, the Company and any agent of the Company may treat the person in whose name this Promissory Note is duly registered on the Company's Promissory Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Promissory Note be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 17.              Mutilated, Lost or Stolen Promissory Notes.  If this Promissory Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Promissory Note, or in lieu of or in substitution for a lost, stolen or destroyed Promissory Note, a new Promissory Note for the principal amount of this Promissory Note so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Promissory Note, and of the ownership hereof, and adequate indemnity, if requested, all reasonably satisfactory to the Company.

 

  

  

  

Section 18.              Governing Law.  This Promissory Note shall be governed by and construed in accordance with the laws of the State of Colorado.  Each of the parties consents to the exclusive jurisdiction of the federal courts whose districts encompass any part of Boulder, Colorado, or the state courts of the State of Colorado sitting in Boulder County, Colorado in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non coveniens, to the bringing of any such proceeding in such jurisdictions. To the extent determined by such court, the Company shall reimburse the Holder for any reasonable legal fees and disbursements incurred by the Holder in enforcement of or protection of any of its rights under any of this Promissory Note.

Section 19.              Waiver of Jury Trial; No Other Waivers.    The Company and the Holder hereby waive the right to a trial by jury in any action, proceeding or counterclaim in respect of any matter arising out or in connection with this Promissory Note.  Any waiver by the Company or the Holder of a breach of any provision of this Promissory Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Promissory Note.  The failure of the Company or the Holder to insist upon strict adherence to any term of this Promissory Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Promissory Note.  Any waiver must be in writing.

Section 20.              Severability. If any provision of this Promissory Note is invalid, illegal or unenforceable, the balance of this Promissory Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.

Section 21.             Obligations Due on a Business Day.  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next calendar month, the preceding Business Day in the appropriate calendar month).

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer duly authorized for such purpose, as of the date first above indicated.

                           AEROGROW INTERNATIONAL, INC.

                           By:____________________________________

                                 H. MacGregor Clarke, Chief Financial Officerex10-3.htm

Exhibit 10.3

 

ESCROW AND ACCOUNT CONTROL AGREEMENT

This Escrow and Account Control Agreement (this “Agreement”) is entered into as of September 6, 2012, by and among AeroGrow International, Inc. (the “Company”), and First Western Trust Bank (in its capacity as escrow holder and Escrow Agent, the “Escrow Agent”).

RECITALS

This Agreement is entered into in reference to the following facts:

A.           The Company has issued or plans to issue to various lenders (the “Lenders”) its Series 2012CC Secured Promissory Notes (the “Notes”) in the aggregate principal amount of up to $1.75 million. To secure repayment of the Notes, the Company has agreed to transfer and assign all of its future credit card receipts (the “Receipts”) to a newly established account with the Escrow Agent (the “Account” or “Escrow Account”) from which Account a portion of the Receivables will be disbursed to the Lenders and the remaining portion of the Receivables will be disbursed to the Company in accordance with the terms of this Agreement. The assignment of the Receipts shall continue until such time as the Notes have been paid in full.

B.           The Escrow Agent is willing to act in such capacity, subject to the terms and conditions hereof.

C.           Each Lender shall be deemed an express beneficiary of the terms of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows.

 

ARTICLE 1 – ESCROW FUNDS

1.1           Appointment of Escrow Agent.  The Company hereby appoints the Escrow Agent to act as escrow holder for the Receipts under the terms of this Agreement.  The Escrow Agent hereby accepts such appointment, subject to the terms, conditions and limitations hereof.

1.2           Escrow Account.  Immediately following the Escrow Agent’s execution of this Agreement and prior to the date of the commencement of the Offering, the parties shall establish a segregated account at First Western Trust Bank (the "Escrow Account”) for the sole purpose of receiving, holding and disbursing the Receipts in accordance with the terms hereof.   The account shall be a demand deposit account, and deposits in such Escrow Account will not bear interest and will not otherwise be invested by the Escrow Agent on behalf of the Company or the Lenders.

1.3           Deposits in Escrow.

(a)           The Company shall execute and deliver to Litle & Co., its credit card service Processor (“Processor”) written authorization and instruction in such form as may be required by Processor to cause all of the Company’s Receipts to be transferred and deposited into the Escrow Account until such time as the Notes have been paid in full. The authorization and instruction from the Company to the Processor shall be irrevocable for so long as any of the Notes are outstanding and unpaid. The Escrow Agent shall deposit and hold all Receipts in the Escrow Account at all times until such funds are disbursed therefrom in accordance with the terms hereof.  The Company shall have the right to engage new Processors during the term hereof; provided that such successor Processor is subject to the same authorization and instruction.

(b)           The Company and REDACTED, as Placement Agent, shall jointly prepare and certify in writing to the Escrow Agent a schedule setting forth the name and address of each Lender and Note holder, including the principal amount of each Note held by such Lender (“Lender Schedule”). The Lender Schedule, when executed by both the Company and the Placement Agent, shall be conclusive and binding on all parties hereto.   The Escrow Agent shall be permitted to rely upon the accuracy of such Lender Schedule and shall not be required to verify or confirm the accuracy thereof.

 

  

  

  

(c)           The Receipts in the form of cash or its equivalent are deemed deposited into the Escrow Account when delivered to the Escrow Agent.  Any Receipts deposited in the form of a check, draft or similar instrument are deemed deposited only when such item is collected by the Escrow Agent (hereinafter, “Collected Funds”).

(d)           The Receipts shall be disbursed by the Escrow Agent from the Escrow Account by wire transfer of funds or by check payable to the appropriate distributee at the address set forth herein, with respect to the Company, and in accordance with the information provided to the Escrow Agent in the Lender Schedule pursuant to Section 1.3(b), with respect to each Lender.

ARTICLE 2 – DISBURSEMENT PROCEDURES

2.1           Disbursement of Receipts.  The Escrow Agent shall receive and disburse the Receipts in accordance with the following procedures:

 

(a)           For the purposes of this Agreement, the Lenders’ share of the Receipts (“Lenders’ Share”) shall be 20% and the Company’s share of the Receipts (“Company’s Share”) shall be 80%.

(b)           Each Lender shall participate in the Lenders’ Share on a proportionate basis and pari passu based upon the principal amount of each Note held by the Lender (the “Lender’s Interest”).  Each Lender’s Interest shall be determined based upon the Lender Schedule and shall not be modified during the term of this Agreement except be agreement in writing signed by the Company and the Lender and acknowledged by the Escrow Agent.

(c)           On a daily basis, the Escrow Agent shall disburse to the Company by wire transfer the Company’s Share of the Receipts.  Escrow Agent shall have the right to deduct from the Company’s Share any accrued and unpaid Escrow Agent Fees as provided for in this Agreement.

(d)           On a bi-weekly basis, the Escrow Agent shall disburse to each Lender by wire transfer the Lender’s Interest in the Lenders’ Share, without deduction or interest.

(e)           The Escrow Agent shall not be required to take any action under this Section 2.1 until it shall have received the Receipts and the Lender Schedule duly certified by the Company.  The Escrow Agent shall not be required to release any funds that constitute the Receipts unless the funds represented thereby are Collected Funds.

(f)            In the event of a return/refund of purchase price as requested by a customer and the Receipts have already been disbursed in the form of the Lenders’ Share and the Company’s Share, the Escrow Agent shall be entitled to reimbursement of such disbursement(s) from future Receipts, to be recouped in the same percentages as listed in 2.1(a) from the Lenders’ Share and the Company’s Share, until the Escrow Agent is made whole in the amount of the requested return/refund.

2.2  Statements and Confirmations.

(a)           The Escrow Agent shall provide the Company and each Lender with Account Statements and Confirmations (“Statements”) no less frequently than monthly. The Escrow Agent will use reasonable effort to notify the Lenders and the Company if any other person claims that it has an interest in the Receipts or the Account.  If any third party requests that that the Escrow Agent enter into an agreement to comply with instructions originated by such third party, or inquires of Escrow Agent whether Escrow Agent has entered into such an agreement with any other person or entity, or inquires of Escrow Agent regarding the existence or non-existence of any adverse claims or interests in or to the Account, Escrow Agent agrees that it will use reasonable efforts promptly to advise such third party of the existence of this agreement in favor of Lender.

 

  

  

  

(b)           The Company will prepare and deliver to each Lender, the Placement Agent, and the Escrow Agent monthly statements reflecting all payment of principal and interest made to the Lenders by the Escrow Agent and setting forth the outstanding and unpaid balance of principal and interest remaining outstanding and unpaid as of the date of each statement.

2.3  Covenants of Escrow Agent

(a)            Escrow Agent will not comply with any instructions originated by either the Company or a Lender unless in writing signed by both parties.

(b)           Escrow Agent shall neither undertake nor permit any disbursements of the Receipts in the Account except in strict conformity and compliance with this Agreement.

(c)            Escrow Agent subordinates in favor of Lenders any security interest, lien or right of set-off it may have, now or in the future, against the Account or the Receipts in the Account.

(d)           Escrow Agent will not agree with any third party that Escrow Agent will comply with instructions originated by a third party, unless consented to in writing by the Company and each Lender.

(e)            Escrow Agent shall not allow any third party to perfect a security interest in the Receipts or the Account.

ARTICLE 3 – GENERAL ESCROW PROCEDURES

3.1           Accounts and Records.  The Escrow Agent shall keep accurate books and records of all transactions hereunder.  Upon final disbursement of the Receipts which retires in full the Company’s obligations to Lenders under the Notes, the Escrow Agent shall deliver to the Company and Placement Agent a complete accounting of all transactions relating to the Receipts.

3.2           Duties.  The Escrow Agent’s duties and obligations hereunder shall be determined solely by the express provisions of this Agreement.  The Escrow Agent’s duties and obligations are purely ministerial in nature, and nothing in this Agreement shall be construed to give rise to any fiduciary obligations of the Escrow Agent with respect to the Lenders or to the other parties to this Agreement.  The Escrow Agent is not charged with any duties or responsibilities with respect to the Notes or any related document and shall not otherwise have a duty to be concerned with the terms thereof.  For purposes of communications and directives, the Escrow Agent shall only accept instructions from the Company or the Lenders as may be required by this Agreement.  The Escrow Agent shall not be required to notify or obtain the consent, approval, authorization or order of court or governmental body or of any Lender or any other person to perform its obligations under this Agreement.

3.3           Disputes.  If there is any disagreement or the presentation of any adverse claim or demand in connection with the disbursement of the Receipts, the Escrow Agent, at its option, after providing written notice to the Company and the Lenders of such disagreement or adverse claim or demand, may refuse to comply with any such claims or demands during the continuance of such disagreement and may refrain from delivering any item affected hereby, and in so doing, the Escrow Agent shall not become liable to the undersigned or to any other person, due to its failure to comply with such adverse claim or demand.  If the Company and Lenders do not provide satisfactory assurances to the Escrow Agent that it may act in accordance with the other provisions of this Agreement, then the Escrow Agent shall be entitled to continue, without liability, to refrain and refuse to act until:

 

  

  

  

(a)           authorized to disburse the Receipts by an order from a court purporting to have jurisdiction over the parties and the Receipts, after which time the Escrow Agent shall be entitled to act in conformity with such order; or

(b)           the Escrow Agent (i) shall have been notified that all differences shall have been adjusted by agreement, and (ii) shall have been directed in writing to take certain actions with respect to the Receipts subject to the adverse claim or demand, signed jointly or in counterpart by the Company, the Lenders and by all persons making adverse claims or demands, at which time the Escrow Agent shall be protected in acting in compliance therewith.

At any time prior to the Escrow Agent’s receipt of a court order or a notice, as provided in Section 3.3(a) or Section 3.3(b), the Escrow Agent may, but is not required to, file a suit in interpleader and deposit the Receipts with the District Court and obtain an order from the court requiring the parties to interplead and litigate in such court adverse claims or demands raised pursuant to this Section 3.3.  If such interpleader suit is brought, the Escrow Agent shall ipso facto be fully released and discharged from all obligations to further perform any and all duties or obligations imposed upon it in relation to the disputed amount.  The Company agrees to reimburse the Escrow Agent for all costs, expenses and reasonable attorney’s fees expended or incurred by the Escrow Agent in connection with such adverse claim or demand, the amount thereof to be fixed and judgment thereof to be rendered by the court in such lawsuit.  In addition and without the institution of legal proceedings, the Escrow Agent shall have the right to consult with attorneys or other advisors of its choosing concerning its rights, duties or obligations hereunder, and the Company shall pay or reimburse the Escrow Agent for all costs, fees and expenses thereby incurred.

3.4           Liability Limited.  The Escrow Agent shall not be liable to anyone whatsoever by any reason of error of judgment or for any act done or step taken or omitted by it in good faith or for any mistake of fact or law or for anything which it may do or refrain from doing in connection herewith unless caused by or arising out of its own gross negligence or willful misconduct.  In no event shall the Escrow Agent be liable for any indirect, special, consequential or punitive damages.  The Company and Placement Agent represent to the Escrow Agent that they have and shall continue to solicit the advice of their respective counsel regarding compliance with all applicable state and federal securities laws in connection with the offer and sale of the Units, and that they will act in accordance with such laws.  The Escrow Agent shall have no responsibility to ensure the Company’s or Placement Agent’s compliance with any such securities laws in connection with the Offering.

3.5           Reliance on Documents, Etc.  The Escrow Agent may rely on and shall be protected in acting in reliance upon any instructions or directions furnished to it in writing or pursuant to any provisions of this Agreement and shall be entitled to treat as genuine, and as the document it purports to be, any letter, paper or other document furnished to it and believed by it to be genuine and to have been signed and presented by the proper party or parties.  The Company and Lenders shall not include the Escrow Agent’s name in any document unless such document has been approved in writing by the Escrow Agent, except with regard to those documents pertaining to and referring to the Escrow Agent’s functions as escrow holder pursuant to this Agreement.

3.6           Indemnification.  The Company agrees to indemnify, defend and hold harmless the Escrow Agent from and against all losses, damages, costs, charges, payments, liabilities and expenses, including all costs of litigation, investigation and reasonable legal fees incurred by the Escrow Agent and arising directly or indirectly out of its role as Escrow Agent pursuant to this Agreement, except as caused by its willful misconduct or gross negligence.  The Company hereby agrees that the Escrow Agent does not assume any responsibility for the failure of any other of the parties to make payments or perform the conditions of this Agreement as set forth herein.  The Escrow Agent may consult with counsel of its choice and shall have full and complete authorization and protection for any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel.  The provisions of this Section 3.6 shall survive the termination of this Agreement.

 

  

  

  

3.7           Resignation.  The Escrow Agent may resign as the escrow holder at any time by giving thirty (30) days prior written notice thereof to all other parties.  Upon notice of resignation by the Escrow Agent, the other parties shall appoint a replacement escrow holder within that thirty (30) day period.  The Escrow Agent may deliver the Receipts to the replacement escrow holder upon (a) notice of the appointment of a new escrow holder, and (b) payment to the Escrow Agent in full of all fees then due and payable to the Escrow Agent.  If no such replacement or substitute has been appointed within 30 days of the Escrow Agent’s notice of resignation, then the Escrow Agent, at the expense of the Company, may petition any court of competent jurisdiction for the appointment of a successor escrow holder.  Upon appointment of successor escrow holder, the Escrow Agent shall forward all documents and deposits pertaining to the escrow to the successor, and the Escrow Agent shall thereafter have no duties or obligations hereunder.

 

ARTICLE 4 – FEE

 

4.1           Fee.  The Company agrees to pay the fees of the Escrow Agent, which unless otherwise agreed to in writing, shall be $3,000.00 annually, to first be assessed upon the initial opening of the Escrow Account and each subsequent anniversary date thereafter.  In furtherance of the foregoing, the Escrow Agent is expressly authorized and directed, but shall not be obligated, to charge against and withdraw from the Account, any service charge fees incurred in accordance with the service charge schedule of the Escrow Agent, including wire transfer fees of $20.00 per domestic wire and $40.00 per international wire.

ARTICLE 5 – GENERAL PROVISIONS

5.1           Notice.  Any notice, request, demand or other communication provided for hereunder to be given shall be in writing and shall be delivered personally, by certified mail, return receipt requested, postage prepaid, or by transmission by a telecommunications device, and shall be effective (a) on the day when personally served, including delivery by overnight mail and courier service, (b) on the third business day after its deposit in the United States mail, and (c) on the business day of confirmed transmission by telecommunications device.  The addresses of the parties hereto (until notice of a change thereof is served as provided in this Section 5.1) shall be as follows:

	
To the Escrow Agent:

 

First Western Trust Bank

233 Milwaukee Street

Denver, CO 80206

Attn: Attn: Melissa Montgomery-Fitzsimmons, 

Director of Wealth Planning

 

	
To the Company:

 

AeroGrow International, Inc.

6075 Longbow Dr., Suite 200

Boulder, CO 80301

Attn: Greg Clarke, CFO

Phone (303) 444-7755

	
To the Placement Agent:

 

REDACTED

	  

 

5.2           Effect of Agreement.  This Agreement shall inure to the benefit of, and be binding upon, the respective successors and assigns of the parties hereto.

5.3           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.

 

  

  

  

5.4           Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but which together shall constitute one and the same instrument.  Delivery of an executed counterpart of this Agreement by facsimile shall be equally effective as delivery of a manually executed counterpart of this Agreement.  Any party delivering an executed counterpart by facsimile also shall deliver a manually executed counterpart of this Agreement, but failure to do so shall not affect the validity, enforceability or binding effect of this Agreement.

5.5           Final Agreement.  This Agreement is intended by the Escrow Agent and the Company, and the Placement Agent to be the final, complete and exclusive expression of the agreement between them.  This Agreement supersedes any and all prior oral or written agreements relating to the subject matter hereof.  No modification, rescission, waiver, release or amendment of any provision of this Agreement shall be made, except by a written agreement signed by the parties hereto by a duly authorized officer thereof.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date and the year first above written.

	
THE COMPANY:

AeroGrow International, Inc.

 

 

 

By:                                                                

Name: H. MacGregor Clarke

Title: Chief Financial Officer

 

	
THE ESCROW AGENT:

First Western Trust Bank

 

 

 

By:                                                                  

Name: Melissa Montgomery-Fitzsimmons,

Title: Director of Wealth Planning

	  
	
 

THE PLACEMENT AGENT:

 

REDACTED

 

 

 

By: ___________________________

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