THIS NOTE
AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
HZO,
INC.
SECURED CONVERTIBLE PROMISSORY
NOTE
$1,150,000
September 25, 2009
FOR VALUE RECEIVED , hZo, Inc., a Delaware corporation (the “
Company ”), promises to pay to Zagg, Inc.
(“ Investor ”), or its registered
assigns, in lawful money of the United States of America the
principal sum of One Million One Hundred and Fifty Thousand Dollars
($1,150,000), or such lesser amount as shall equal the outstanding
principal amount hereof, together with interest from the date of
this Note on the unpaid principal balance at a rate equal to 0.84%
per annum, computed on the basis of the actual number of days
elapsed and a year of 365 days. All unpaid principal,
together with any then unpaid and accrued interest and other
amounts payable hereunder, shall be due and payable on the earlier
of (i) February 25, 2010 (the “ Maturity
Date ”), (ii) immediately prior to a Change of
Control (as defined below) or (iii) when, upon or after the
occurrence of an Event of Default (as defined below), such amounts
are declared due and payable by holders of a Majority in Interest
(as defined below) or made automatically due and payable in
accordance with the terms hereof. This Note is one of
the “ Notes ” issued pursuant to the Note
and Warrant Purchase Agreement dated as of September 25, 2009 (as
amended, modified or supplemented, the “ Purchase
Agreement ”) between the Company and the Investors
(as defined in the Purchase Agreement).
THE OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED
BY A SECURITY AGREEMENT (THE “ SECURITY
AGREEMENT ”) DATED AS OF THE DATE OF THE PURCHASE
AGREEMENT AND EXECUTED BY COMPANY IN FAVOR OF COLLATERAL AGENT (AS
DEFINED THEREIN) FOR THE BENEFIT OF THE
INVESTOR. ADDITIONAL RIGHTS OF INVESTOR ARE SET FORTH IN
THE SECURITY AGREEMENT.
The following is a statement of the rights of
Investor and the conditions to which this Note is subject, and to
which Investor, by the acceptance of this Note, agrees:
1.
Definitions
. As used in this Note, the
following capitalized terms have the following meanings:
(a) “
Change of Control ” means (i) the acquisition
of the Company by another entity by means of any transaction or
series of related transactions to which the Company is party
(including, without limitation, any stock acquisition,
reorganization, merger or consolidation but excluding any sale of
stock for capital raising purposes) other than a transaction or
series of transactions in which the holders of the voting
securities of the Company outstanding immediately prior to such
transaction continue to retain (either by such voting securities
remaining outstanding or by such voting securities being converted
into voting securities of the surviving entity or the entity
controlling such surviving entity), as a result of shares in the
Company held by such holders prior to such transaction, at least
fifty percent (50%) of the total voting power represented by the
voting securities of the Company, such surviving entity or the
entity that controls such surviving entity outstanding immediately
after such transaction or series of transactions, or (ii) a sale,
lease or other conveyance of all or substantially all of the assets
of the Company.
(b) the “
Company ” includes the corporation initially
executing this Note and any Person which shall succeed to or assume
the obligations of the Company under this Note.
(c) “
Event of Default ” has the meaning given in
Section 4 hereof.
(d) “
Investor ” shall mean the Person specified in
the introductory paragraph of this Note or any Person who shall at
the time be the registered holder of this Note. A reference to a
Lien of Investor or a security agreement executed in favor of
Investor shall be deemed to include a Lien granted to a collateral
agent on behalf of Investor and a security agreement executed in
favor of a collateral agent on behalf of Investor,
respectively.
(e) “
Lien ” shall mean, with respect to any
property, any security interest, mortgage, pledge, lien, claim,
charge or other encumbrance in, of, or on such property or the
income therefrom, including, without limitation, the interest of a
vendor or lessor under a conditional sale agreement, capital lease
or other title retention agreement, or any agreement to provide any
of the foregoing, and the filing of any financing statement or
similar instrument under the Uniform Commercial Code or comparable
law of any jurisdiction.
(f) “
Majority in Interest ” shall mean more than
fifty percent (50%) of the aggregate outstanding principal amount
of the Notes issued pursuant to the Purchase Agreement.
(g) “
Obligations ” shall mean and include all loans,
advances, debts, liabilities and obligations, howsoever arising,
owed by the Company to Investor of every kind and description
(whether or not evidenced by any note or instrument and whether or
not for the payment of money), now existing or hereafter arising
under or pursuant to the terms of this Note, the Purchase Agreement
and the other Transaction Documents, including, all interest, fees,
charges, expenses, attorneys’ fees and costs and
accountants’ fees and costs chargeable to and payable by the
Company hereunder and thereunder, in each case, whether direct or
indirect, absolute or contingent, due or to become due, and whether
or not arising after the commencement of a proceeding under
Title 11 of the United States Code (11 U. S. C.
Section 101 et seq .), as amended from time to time
(including post-petition interest) and whether or not allowed or
allowable as a claim in any such proceeding. Notwithstanding the
foregoing, the term “Obligations” shall not include any
obligations of Company under or with respect to the Warrant (as
defined below).
(h) “
Person ” shall mean and include an individual,
a partnership, a corporation (including a business trust), a joint
stock company, a limited liability company, an unincorporated
association, a joint venture or other entity or a governmental
authority.
(i) “
Purchase Agreement ” has the meaning given in
the introductory paragraph hereof.
(j) “
Securities Act ” shall mean the Securities Act
of 1933, as amended.
(k) “
Security Agreement ” has the meaning given in
the introductory paragraphs to this Note.
(l) “
Senior Indebtedness ” shall mean, unless
expressly subordinated to or made on a parity with the amounts due
under this Note, the principal of (and premium, if any), unpaid
interest on and amounts reimbursable, fees, expenses, costs of
enforcement and other amounts due in connection with, indebtedness
of Company, to banks, commercial finance lenders, insurance
companies, leasing or equipment financing institutions or other
lending institutions regularly engaged in the business of lending
money, which is for money borrowed , or purchase or leasing of
equipment in the case of the lease or other equipment financing,
whether or not secured.
(m) “
Transaction Documents ” shall mean this Note,
each of the other Notes issued under the Purchase Agreement, the
Purchase Agreement, the Warrants issued under the Purchase
Agreement (each a “ Warrant , ”
and collectively, the “ Warrants ”) and
the Security Agreement.
2.
Interest . Accrued interest on this Note shall
be payable at maturity.
3.
Prepayment
. This Note may not be
prepaid.
4.
Events of Default
. The occurrence of any of the
following shall constitute an “ Event of
Default ” under this Note and the other Transaction
Documents:
(a)
Failure to Pay
. The Company shall fail
to pay (i) when due any principal or interest payment on the
due date hereunder or (ii) any other payment required under
the terms of this Note or any other Transaction Document on the
date due and such payment shall not have been made within five days
of the Company’s receipt of Investor’s written notice
to the Company of such failure to pay; or
(b)
Representations, Warranties and
Covenants. Any
representation, warranty, or certificate delivered by or on behalf
of the Company to Investor pursuant to the Transaction Documents,
shall be false, incorrect, incomplete or misleading in any material
respect when made or delivered, or any covenant made by the Company
pursuant to the Transaction Documents shall be breached;
or
(c)
Other Payment
Obligations. Any
indebtedness under any bonds, debentures, notes or other evidences
of indebtedness for money borrowed (or any guarantees thereof,
excluding this Note and the other Transactions Documents) by the
Company or any of its Subsidiaries in an aggregate principal amount
in excess of $50,000 is not paid when due either at its stated
maturity or upon acceleration thereof, and such indebtedness is not
discharged, or such acceleration is not rescinded or annulled;
or
(d)
Voluntary Bankruptcy or
Insolvency Proceedings. The Company or any of its Subsidiaries shall
(i) apply for or consent to the appointment of a receiver,
trustee, liquidator or custodian of itself or of all or a
substantial part of its property, (ii) be unable, or admit in
writing its inability, to pay its debts generally as they mature,
(iii) make a general assignment for the benefit of its or any
of its creditors, (iv) be dissolved or liquidated,
(v) become insolvent (as such term may be defined or
interpreted under any applicable statute), (vi) commence a
voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the
appointment of or taking possession of its property by any official
in an involuntary case or other proceeding commenced against it, or
(vii) take any action for the purpose of effecting any of the
foregoing; or
(e)
Involuntary Bankruptcy or
Insolvency Proceedings. Proceedings for the appointment of a receiver,
trustee, liquidator or custodian of the Company or any of its
Subsidiaries or of all or a substantial part of the property
thereof, or an involun
|
