Current Report

 

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.

 

 

 

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 involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or any of its Subsidiaries or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within 30 days of commencement.

 

5.   Rights of Investor upon Default . Upon the occurrence or existence of any Event of Default (other than an Event of Default described in Sections 4(d) or 4(e)) and at any time thereafter during the continuance of such Event of Default, Investor may, with the consent of holders of a Majority in Interest, by written notice to the Company, declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding.  Upon the occurrence or existence of any Event of Default described in Sections 4(d) and 4(e), immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding.  In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, Investor may exercise any other right power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both.

 

6.   Conversion.

 

(a)   Automatic Conversion .   In the event the Company consummates an equity financing prior to the Maturity Date pursuant to which the Company sells shares of a series of preferred stock in a transaction or series of related transactions with an aggregate sales price of not less than $1,000,000, excluding cancellation of indebtedness or conversion of any and all convertible bridge notes which are converted into preferred stock (including the Notes), and with the principal purpose of raising capital (a “ Qualified Financing ”), then this the outstanding principal amount of, and all accrued but unpaid interest under this Note shall automatically convert into Qualified Securities, as defined below, at the same price and on the same terms as the other investors purchasing such Qualified Securities in the Qualified Financing (the “ Conversion Price ”). The term “ Qualified Securities ” means the preferred stock issued in a Qualified Financing.  In conjunction with such conversion, Investor shall become a party and shall execute all related Qualified Financing documentation.

 

 

 

 

 

(b)   Optional Conversion .  If the Company has not consummated a Qualified Financing prior to the Maturity Date or immediately prior to a Change of Control, or if an Event of Default occurs, then all or a portion of the outstanding principal amount of, and all accrued but unpaid interest under, this Note shall be convertible at the option of Investor into shares of the Company’s Common Stock (the “ Common Stock ”), at a conversion price per share to be determined in good faith by the Company’s Board of Directors and the Investors (the “ Common Stock Conversion Price ”).  The Company shall be required to provide Investor at least fifteen (15) days prior written notice of a Change of Control.

 

(c)   Conversion Procedure .

 

(i)   Conversion Pursuant to Section 6(a) .  If this Note is automatically converted, written notice shall be delivered to Investor at the address last shown on the records of the Company for Investor or given by Investor to the Company for the purpose of notice or, if no such address appears or is given, at the place where the principal executive office of the Company is located, notifying Investor of the conversion to be effected, specifying the Conversion Price, the principal amount of the Note to be converted, the date on which such conversion is expected to occur and calling upon such Investor to surrender to the Company, in the manner and at the place designated, the Note.  Upon such conversion of this Note, Investor shall surrender this Note, duly endorsed, at the principal office of the Company.  At its expense, the Company shall, as soon as practicable thereafter, issue and deliver to such Investor at such principal office a certificate or certificates for the number of shares to which Investor shall be entitled upon such conversion (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company), together with any other securities and property to which Investor is entitled upon such conversion under the terms of this Note, including a check payable to Investor for any cash amounts payable as described in Section 6(c)(iii).  Any conversion of this Note pursuant to Section 6(a) shall be deemed to have been made immediately prior to the closing of the issuance and sale of shares as described in Section 6(a) and on and after such date the Persons entitled to receive the shares issuable upon such conversion shall be treated for all purposes as the record holder of such shares and a purchaser of such shares under the Qualified Financing documentation and shall be bound by the terms of the Qualified Financing documentation.

 

(ii)   Conversion Pursuant to Section 6(b) .  Before Investor shall be entitled to convert this Note into shares of Common Stock pursuant to Section 6(b), it shall surrender this Note, duly endorsed, at the principal office of the Company and shall give written notice to the Company at its principal corporate office, of the election to convert the same pursuant to Section 6(b), and shall state therein the amount of the unpaid principal amount of this Note to be converted and the name or names in which the certificate or certificates for shares of Common Stock are to be issued.  The Company shall, as soon as practicable thereafter, issue and deliver at such office to Investor a certificate or certificates for the number of shares of Common Stock to which Investor shall be entitled upon conversion (bearing such legends as may be required by law and any applicable agreements to which the Company’s stockholders are bound, the Rights Agreement, the Voting Agreement and the Co-Sale Agreement, and in the opinion of counsel to the Company), together with a replacement Note (if any principal amount is not converted) and any other securities and property to which Investor is entitled upon such conversion under the terms of this Note, including a check payable to Investor for any cash amounts payable as described in Section 6(c)(iii) below.  The conversion shall be deemed to have been made immediately prior to the close of business on the date of the surrender of this Note, and the Person or Persons entitled to receive the shares of Common Stock upon such conversion shall be treated for all purposes as the record holder or holders of shares of such Common Stock as of such date.

 

 

 

 

 

 

(iii)   Fractional Shares; Interest; Effect of Conversion . No fractional shares shall be issued upon conversion of this Note.  In lieu of the Company issuing any fractional shares to Investor upon the conversion of this Note, the Company shall pay to Investor an amount equal to the product obtained by multiplying the applicable Conversion Price by the fraction of a share not issued pursuant to the previous sentence.  In addition, the Company shall pay to Investor any interest accrued on the amount converted and on the amount to be paid to the Company pursuant to the previous sentence.  Upon conversion of this Note in full and the payment of the amounts specified in this Section 6(c)(iii), the Company shall be forever released from all its obligations and liabilities under this Note.

 

7.   Successors and Assigns.   Subject to the restrictions on transfer described in Sections 9 and 10 below, the rights and obligations of the Company and Investor shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.

 

8.   Waiver and Amendment.   Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the holders of a Majority in Interest.

 

9.   Restrictions on Transfer .  This Note may be transferred only in compliance with applicable United States federal and state securities laws and only upon surrender of the original Note for registration of transfer, duly endorsed, or accompanied by a duly executed written instrument of transfer in form satisfactory to the Company, together, if reasonably requested by the Company, with a written opinion of Investor’s United States counsel, to the effect that such transfer may be effected without registration or qualification under any United States federal or state law then in effect.  A new Note for like principal amount and interest will be issued to, and registered in the name of, the transferee.  Interest and principal are payable only to the registered holder of this Note.  Investor agrees to provide a Form W-9 to the Company upon request.

 

Notwithstanding the provisions above, no such opinion of counsel shall be required:  (i) for any transfer of this Note or securities into which such Note may be converted in compliance with SEC Rule 144 or Rule 144A, or (ii) for any transfer of this Note or such securities by an Investor that is a partnership or a corporation to (A) a partner of such partnership or stockholder of such corporation, (B) a controlled affiliate of such partnership or corporation, (C) a retired partner of such partnership who retires after the date hereof, (D) the estate of any such partner or stockholder, or (iii) for the transfer by gift, will or intestate succession by any Investor to his or her spouse or lineal descendants or ancestors or any trust for any of the foregoing; provided that in each of the foregoing cases under subsections (ii) and (iii) the transferee agrees in writing to be subject to the terms of this Section 9 to the same extent as if the transferee were an original Investor hereunder.

 

10.   Assignment by the Company.   Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of the holders of a Majority in Interest.

 

11.   Subordination.   The indebtedness evidenced by this Note is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of all of Company’s Senior Indebtedness, provided that, as of the date this Note is issued, the Company has no Senior Indebtedness.

 

 

 

 

 

(a)            Insolvency Proceedings .  If there shall occur any receivership, insolvency, assignment for the benefit of creditors, bankruptcy, reorganization, or arrangements with creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale of all or substantially all of the assets, dissolution, liquidation, or any other marshaling of the assets and liabilities of Company, (i) no amount shall be paid by Company in respect of the principal of, interest on or other amounts due with respect to this Note at the time outstanding, unless and until the principal of and interest on the Senior Indebtedness then outstanding shall be paid in full, and (ii) no claim or proof of claim shall be filed with Company by or on behalf of the holder of this Note which shall assert any right to receive any payments in respect of the principal of and interest on this Note except subject to the payment in full of the principal of and interest on all of the Senior Indebtedness then outstanding.

 

(b)            Default on Senior Indebtedness .  If there shall occur an event of default which has been declared in writing with respect to any Senior Indebtedness, as defined therein, or in the instrument under which it is outstanding, permitting the holder to accelerate the maturity thereof and the holder of this Note shall have received written notice thereof from the holder of such Senior Indebtedness, then, unless and until such event of default shall have been cured or waived or shall have ceased to exist, or all Senior Indebtedness shall have been paid in full, no payment shall be made in respect of the principal of or interest on this Note, unless within ninety (90) days after the happening of such event of default, the maturity of such Senior Indebtedness shall not have been accelerated.  Not more than one notice may be given to the holder of this Note pursuant to the terms of this Section 11(b) during any 360 day period.

 

12.   Notices.   All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and faxed, mailed or delivered to each party at the respective addresses of the parties as set forth in the Purchase Agreement, or at such other address or facsimile number as the Company shall have furnished to Investor in writing.  All such notices and communications will be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one business day after being delivered by facsimile (with receipt of appropriate confirmation), (iv) one business day after being deposited with an overnight courier service of recognized standing or (v) four days after being deposited in the U.S. mail, first class with postage prepaid.

 

13.   Pari Passu Notes .  Investor acknowledges and agrees that the payment of all or any portion of the outstanding principal amount of this Note and all interest hereon shall be pari passu in right of payment and in all other respects to the other Notes issued pursuant to the Purchase Agreement or pursuant to the terms of such Notes.  In the event Investor receives payments in excess of its pro rata share of the Company’s payments to the Investors of all of the Notes, then Investor shall hold in trust all such excess payments for the benefit of the holders of the other Notes and shall pay such amounts held in trust to such other holders upon demand by such holders.

 

14.   Payment.   Payment shall be made in lawful tender of the United States.

 

15.   Default Rate; Usury. During any period in which an Event of Default has occurred and is continuing, the Company shall pay interest on the unpaid principal balance hereof at a rate per annum equal to the rate otherwise applicable hereunder plus five percent (5%).  In the event any interest is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note, or returned to the Company, at the election of Investor.

 

16.   Expenses; Waivers.   If action is instituted to collect this Note, the Company promises to pay all costs and expenses, including, without limitation, reasonable attorneys’ fees and costs, incurred in connection with such action.  The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.

 

17.   Governing Law.   This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the State of Utah, without regard to the conflicts of law provisions of the State of Utah, or of any other state.

 

[ Signature Page Follows ]

 

 

 

 

 

The Company has caused this Note to be issued as of the date first written above.

HZO, INC.

a Delaware corporation

By:    /s/Robert G. Pedersen, II                                                    

        Robert G. Pedersen II , President

 

 

HZO, INC.

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (as amended, modified or otherwise supplemented from time to time, this “ Security Agreement ”), dated as of September 25, 2009 (the “ Closing Date ”), is executed by hZo, Inc., a Delaware corporation, (together with its successors and assigns, “ Debtor ”), in favor of Collateral Agent (as defined below) on behalf of the Secured Parties listed on the signature pages hereof (the “ Secured Parties ”).

 

RECITALS

 

A.           Debtor has executed secured convertible   promissory notes in favor of the Secured Parties, (as amended, modified or otherwise supplemented from time to time, each a “ Note ” and collectively, the “ Notes ”).

 

B.           In order to induce each Secured Party to extend the credit evidenced by the Notes, Debtor has agreed to enter into this Security Agreement and to grant Collateral Agent, for the benefit of itself and the Secured Parties, the security interest in the Collateral (as defined below) described below.

 

AGREEMENT

 

NOW, THEREFORE , in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Debtor hereby agrees with Collateral Agent and the Secured Parties as follows:

 

1.   Definitions and Interpretation .  When used in this Security Agreement, the following terms have the following respective meanings:

 

“ Collateral ” has the meaning given to that term in Section 2 hereof.

 

“ 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 UCC or comparable law of any jurisdiction.

 

“ Obligations ” means all loans, advances, debts, liabilities and obligations, howsoever arising, owed by Debtor to Collateral Agent and the Secured Parties 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 the Notes and this Security Agreement, including all interest, fees, charges, expenses, attorneys’ fees and costs and accountants’ fees and costs chargeable to and payable by Debtor 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.

 

 

 

 

“ Permitted Liens ” means (a) Liens for taxes not yet delinquent or Liens for taxes being contested in good faith and by appropriate proceedings for which adequate reserves have been established; (b) Liens in respect of property or assets imposed by law which were incurred in the ordinary course of business, such as carriers’, warehousemen’s, materialmen’s and mechanics’ Liens and other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings; (c) Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, and mechanic’s Liens, carrier’s Liens and other Liens to secure the performance of tenders, statutory obligations, contract bids, government contracts, performance and return of money bonds and other similar obligations, incurred in the ordinary course of business, whether pursuant to statutory requirements, common law or consensual arrangements; (d) Liens in favor of the Collateral Agent in its capacity as such arising under this Security Agreement;   (e) Liens securing obligations under a capital lease if such Liens do not extend to property other than the property leased under such capital lease; and (f) Liens upon any equipment acquired or held by Debtor to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, so long as such Lien extends only to the equipment financed, and any accessions, replacements, substitutions and proceeds (including insurance proceeds) thereof or thereto.

 

“ UCC ” means the Uniform Commercial Code as in effect in the State of Utah from time to time.

 

Unless otherwise defined herein, all terms defined in the UCC have the respective meanings given to those terms in the UCC.

 

2.   Grant of Security Interest .  As security for the Obligations, Debtor hereby pledges to Collateral Agent and grants to Collateral Agent a security interest in all right, title and interests of Debtor in and to the property described in Attachment 1 hereto, whether now existing or hereafter from time to time acquired (collectively, the “ Collateral ”).  Notwithstanding the foregoing, the security interest granted herein shall not extend to and the term “Collateral” shall not include (a) any equipment and accessions, replacements and proceeds thereof, leased from or financed by third parties to the extent the contracts evidencing such lease or financing prohibit the granting by Debtor of any security interest therein and (b) any property, rights or licenses to the extent the granting of a security interest therein would be contrary to applicable law.

 

3.   General Representations and Warranties .  Debtor represents and warrants to Collateral Agent and the Secured Parties that (a) Debtor is the owner of the Collateral (or, in the case of after-acquired Collateral, at the time Debtor acquires rights in the Collateral, will be the owner thereof) and that no other person has (or, in the case of after-acquired Collateral, at the time Debtor acquires rights therein, will have) any right, title, claim or interest (by way of Lien or otherwise) in, against or to the Collateral, other than Permitted Liens; (b) upon the filing of UCC-1 financing statements in the office of the Secretary of State of the State of Delaware, Collateral Agent has (or in the case of after-acquired Collateral, at the time Debtor acquires rights therein, will have) a first priority perfected security interest in the Collateral, except for Permitted Liens; (c) all inventory has been (or, in the case of hereafter produced inventory, will be) produced in compliance with applicable laws; and (d) all accounts receivable and payment intangibles are genuine and enforceable against the party obligated to pay the same.

 

 

 

 

 

4.   Covenants Relating to Collateral .  Debtor hereby agrees (a) to perform all acts that may be necessary to maintain, preserve, protect and perfect the Collateral, the Lien granted to Collateral Agent therein, and the perfection and priority of such Lien, except for Permitted Liens; (b) not to use or permit any Collateral to be used (i) in violation in any material respect of any applicable law, rule or regulation, or (ii) in violation of any policy of insurance covering the Collateral; (c) to pay promptly when due all taxes and other governmental charges, all Liens and all other charges now or hereafter imposed upon or affecting any Collateral; (d) not to otherwise encumber the Collateral, except for Permitted Liens; and (e) to procure, execute and deliver from time to time any endorsements, assignments, financing statements and other writings reasonably deemed necessary or appropriate by Collateral Agent to perfect, maintain and protect its Lien hereunder and the priority thereof and to deliver promptly to Collateral Agent all originals of Collateral consisting of instruments.

 

5.   Authorized Action by Collateral Agent .  Debtor hereby irrevocably appoints Collateral Agent as its attorney-in-fact (which appointment is coupled with an interest) and agrees that Collateral Agent may perform (but Collateral Agent shall not be obligated to and shall incur no liability to Debtor or any third party for failure so to do) any act which Debtor is obligated by this Security Agreement to perform, and to exercise such rights and powers as Debtor might exercise with respect to the Collateral, including the right to (a) collect by legal proceedings or otherwise and endorse, receive and receipt for all dividends, interest, payments, proceeds and other sums and property now or hereafter payable on or on account of the Collateral; (b) enter into any extension, reorganization, deposit, merger, consolidation or other agreement pertaining to, or deposit, surrender, accept, hold or apply other property in exchange for the Collateral; (c) make any compromise or settlement, and take any action it deems advisable, with respect to the Collateral; (d) insure, process and preserve the Collateral; (e) pay any indebtedness of Debtor relating to the Collateral; and (f) execute UCC financing statements and other documents, instruments and agreements required hereunder; provided, however , that Collateral Agent shall not exercise any such powers granted pursuant to subsections (a) through (c) prior to the occurrence of an Event of Default (as defined in the Notes) and shall only exercise such powers during the continuance of an Event of Default.

 

6.   Default and Remedies .

 

(a)   Default .  Debtor shall be deemed in default under this Security Agreement upon the occurrence and during the continuance of an Event of Default.

 

(b)   Remedies .  Upon the occurrence and during the continuance of any such Event of Default, Collateral Agent shall have the rights of a secured creditor under the UCC, all rights granted by this Security Agreement and by law, including the right to: (a) require Debtor to assemble the Collateral and make it available to Collateral Agent and the Secured Parties at a place to be designated by Collateral Agent and the Secured Parties; and (b) prior to the disposition of the Collateral, store, process, repair or recondition it or otherwise prepare it for disposition in any manner and to the extent Collateral Agent and the Secured Parties deem appropriate and in connection with such preparation and disposition, without charge, use any trademark, trade name, copyright, patent or technical process used by Debtor.  Debtor hereby agrees that ten (10) days’ notice of any intended sale or disposition of any Collateral is reasonable.  In furtherance of Collateral Agent’s rights hereunder, Debtor hereby grants to Collateral Agent an irrevocable, non-exclusive license (exercisable without royalty or other payment by Collateral Agent, but only in connection with the exercise of remedies hereunder) to use, license or sublicense any patent, trademark, trade name, copyright or other intellectual property in which Debtor now or hereafter has any right, title or interest together with the right of access to all media in which any of the foregoing may be recorded or stored.

 

 

 

 

 

 

7.   Collateral Agent .

 

(a)   Appointment .  The Secured Parties hereby appoint ZAGG, Inc. as collateral agent for the Secured Parties under this Security Agreement (in such capacity, the “ Collateral Agent ”) to serve from the date hereof until the termination of the Security Agreement, provided that ZAGG, Inc. may resign upon five (5) days written notice to the Company and the Secured Parties, whereupon the holders of a majority in interest of the Notes shall promptly appoint a substitute collateral agent by written notice to the Company and the Secured Parties .

 

(b)   Powers and Duties of Collateral Agent, Indemnity by Secured Parties .

 

(i)   Each Secured Party hereby irrevocably authorizes the Collateral Agent to take such action and to exercise such powers hereunder as provided herein or as requested in writing by the holders of at least a majority in interest of the Notes in accordance with the terms hereof, together with such powers as are reasonably incidental thereto.  Collateral Agent may execute any of its duties hereunder by or through agents or employees and shall be entitled to request and act in reliance upon the advise of counsel concerning all matters pertaining to its duties hereunder and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance therewith.

 

(ii)   Neither the Collateral Agent nor any of its directors, officers or employees shall be liable or responsible to any Secured Party or to Debtor for any action taken or omitted to be taken by Collateral Agent or any other such person hereunder or under any related agreement, instrument or document, except in the case of gross negligence or willful misconduct on the part of the Collateral Agent, nor shall the Collateral Agent or any of its directors, officers or employees be liable or responsible for (i) the validity, effectiveness, sufficiency, enforceability or enforcement of the Notes, this Security Agreement or any instrument or document delivered hereunder or relating hereto; (ii) the title of Debtor to any of the Collateral or the freedom of any of the Collateral from any prior or other liens or security interests; (iii) the determination, verification or enforcement of Debtor’s compliance with any of the terms and conditions of this Security Agreement; (iv) the failure by Debtor to deliver any instrument  or document required to be delivered pursuant to the terms hereof; or (v) the receipt, disbursement, waiver, extension or other handling of payments or proceeds made or received with respect to the Collateral, the servicing of the Collateral or the enforcement or the collection of any amounts owing with respect to the Collateral.

 

(iii)   In the case of this Security Agreement and the transactions contemplated hereby and any related document relating to any of the Collateral, each of the Secured Parties agrees to pay to the Collateral Agent, on demand, its pro rata share of all fees and all expenses incurred in connection with the operation and enforcement of this Security Agreement, the Notes or any related agreement to the extent that such fees or expenses have not been paid by Debtor.  In the case of this Security Agreement and each instrument and document relating to any of the Collateral, each of the Secured Parties and the Debtor hereby agrees to hold the Collateral Agent harmless, and to indemnify the Collateral Agent from and against any and all loss, damage, expense or liability which may be incurred by the Collateral Agent under this Security Agreement and the transactions contemplated hereby and any related agreement or other instrument or document, as the case may be, unless such liability shall be caused by the willful misconduct or gross negligence of the Collateral Agent.

 

 

 

 

 

8.   Miscellaneous .

 

(a)   Notices .  Except as otherwise provided herein, all notices, requests, demands, consents, instructions or other communications to or upon Debtor or Collateral Agent under this Security Agreement shall be directed as set forth below (or as the recipient thereof shall otherwise have directed in writing in accordance herewith) and shall be effective (i) when sent by Federal Express or other overnight service of recognized standing, on the business day following the deposit with such service; (ii) when mailed, by registered or certified mail, postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (iii) when delivered by hand, upon delivery; and (iv) when telecopied, upon confirmation of receipt.

 

Collateral Agent :

ZAGG, Inc.

3855 South 500 West, Suite B

Salt Lake City, UT 84115

Telephone: (801) 263-0699

Facsimile: (801) [_____________]

Attention: Robert G. Pedersen II

 

Debtor :

hZo, Inc.

3855 South 500 West, Suite J

Salt Lake City, UT 84115

Telephone:(801) 918-4343

Facsimile: (888) 291-8354

Attention: Robert G. Pedersen II

 

(b)   Nonwaiver .  No failure or delay on Collateral Agent’s part in exercising any right hereunder shall operate as a waiver thereof or of any other right nor shall any single or partial exercise of any such right preclude any other further exercise thereof or of any other right.

 

(c)   Amendments and Waivers .  This Security Agreement may not be amended or modified, nor may any of its terms be waived, except by written instruments signed by Debtor and Collateral Agent, provided that if the Debtor issues additional Notes after the date hereof, any purchaser of such Notes may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and thereafter shall be deemed a “Secured Party” for all purposes hereunder.  Each waiver or consent under any provision hereof shall be effective only in the specific instances for the purpose for which given.

 

(d)   Assignment .  This Security Agreement shall be binding upon and inure to the benefit of Collateral Agent and Debtor and their respective successors and assigns; provided, however , that Debtor may not sell, assign or delegate rights and obligations hereunder without the prior written consent of Collateral Agent.

 

(e)   Cumulative Rights, etc .  The rights, powers and remedies of Collateral Agent under this Security Agreement shall be in addition to all rights, powers and remedies given to Collateral Agent by virtue of any applicable law, rule or regulation of any governmental authority, or any of the Notes, all of which rights, powers, and remedies shall be cumulative and may be exercised successively or concurrently without impairing Collateral Agent’s rights hereunder.  Debtor waives any right to require Collateral Agent to proceed against any person or entity or to exhaust any Collateral or to pursue any remedy in Collateral Agent’s power.

 

 

 

 

(f)   Expenses .  Debtor shall pay on demand all reasonable fees and expenses, including reasonable attorneys’ fees and expenses, incurred by Collateral Agent in connection with custody, preservation or sale of, or other realization on, any of the Collateral or the enforcement or attempt to enforce any of the Obligations which is not performed as and when required by this Security Agreement.

 

(g)   Entire Agreement .  This Security Agreement, each of the Notes, taken together and that certain Note and Warrant Purchase Agreement dated as of September 25, 2009 between the Company, Collateral Agent and the Secured Parties constitute and contain the entire agreement of Debtor, Secured Parties and Collateral Agent and supersede any and all prior agreements, negotiations, correspondence, understandings and communications among the parties, whether written or oral, respecting the subject matter hereof.

 

(h)   Governing Law .  This Security Agreement shall be governed by and construed in accordance with the laws of the State of Utah without reference to conflicts of law rules.

 

(i)   Counterparts .  This Security Agreement may be executed in any number of counterparts, each of which shall be an original and all of which together shall constitute one instrument.

 

(j)   Termination of Security Interest .  Upon the payment in full of all Obligations, the security interest granted herein shall terminate and all rights to the Debtor Collateral shall revert to Debtor.  Upon such termination Collateral Agent hereby authorizes Debtor to file any UCC termination statements necessary to effect such termination and Collateral Agent will execute and deliver to Debtor any additional documents or instruments as Debtor shall reasonably request to evidence such termination.

 

[ Signature page follows ]

 

 

 

 

IN WITNESS WHEREOF , Debtor has caused this Security Agreement to be executed as of the day and year first above written.

 

DEBTOR:

HZO, INC.

a Delaware corporation

 

By:           

                           Robert G. Pedersen II, President

Agreed and Accepted:

As Collateral Agent and Secured Party:

ZAGG, INC.

a Nevada corporation

By:                                                                

Name:                                                                           

Title:                                                                

 

ATTACHMENT 1

 

TO SECURITY AGREEMENT

 

All right, title, interest, claims and demands of Debtor in and to the following property:

 

(i)   All goods and equipment now owned or hereafter acquired, including, without limitation, all laboratory equipment, computer equipment, office equipment, machinery, fixtures, vehicles, and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located;

 

(ii)   All inventory now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Debtor’s custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Debtor’s books relating to any of the foregoing;

 

(iii)   All contract rights, general intangibles, health care insurance receivables, payment intangibles and commercial tort claims, now owned or hereafter acquired, including, without limitation, all patents, patent rights (and applications and registrations therefor), trademarks and service marks (and applications and registrations therefor), inventions, copyrights, mask works (and applications and registrations therefor), trade names, trade styles, software and computer programs including source code, trade secrets, methods, processes, know how, drawings, specifications, descriptions, and all memoranda, notes, and records with respect to any research and development, goodwill, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer disks, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind and whether in tangible or intangible form or contained on magnetic media readable by machine together with all such magnetic media;

 

(iv)   All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Debtor arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Debtor (subject, in each case, to the contractual rights of third parties to require funds received by Debtor to be expended in a particular manner), whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Debtor and Debtor’s books relating to any of the foregoing;

 

(v)   All documents, cash, deposit accounts, letters of credit, letter of credit rights, supporting obligations, certificates of deposit, instruments, chattel paper, electronic chattel paper, tangible chattel paper and investment property, including, without limitation, all securities (including of subsidiaries), whether certificated or uncertificated, security entitlements, securities accounts, commodity contracts and commodity accounts, and all financial assets held in any securities account or otherwise, wherever located, now owned or hereafter acquired and Debtor’s books relating to the foregoing;

 

(vi)           All other goods and personal property of Debtor, wherever located, whether tangible or intangible, and whether now owned or hereafter acquired; and

 

(vi)   Any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof, including, without limitation, insurance, condemnation, requisition or similar payments and the proceeds thereof.

 

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE 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 EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED.

 

Void after

September 25, 2014

 

HZO, INC.

 

WARRANT TO PURCHASE SHARES

 

This Warrant is issued to ZAGG, Inc. (the “ Holder ”) by hZo, Inc., a Delaware corporation (the “ Company ”), pursuant to the terms of that certain Note and Warrant Purchase Agreement (the “ Purchase Agreement ”), dated as of September 25, 2009, in connection with the Company’s issuance of a Subordinated Secured Convertible Promissory Note (the “ Note ”) to the Holder.

 

1.   Purchase of Shares .  Subject to the terms and conditions hereinafter set forth and set forth in the Purchase Agreement, the Holder is entitled, during the Exercise Period, as defined below, upon surrender of this Warrant at the principal office of the Company (or at such other place as the Company shall notify the Holder in writing), to purchase from the Company up to the number of fully paid and nonassessable Shares (as defined below) equal to thirty percent (30%) multiplied by the quotient obtained by dividing the principal amount of the Note by the Exercise Price (as defined below).

 

2.   Definitions .

 

(a)   Change of Control .  The term “ Change of Control ” shall mean (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), 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 or such surviving entity outstanding immediately after such transaction or series of transactions; (ii) a sale, lease or other conveyance of all or substantially all of the assets of the Company; or (iii) any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary.

 

(b)   Exercise Period .  Prior to the expiration of this Warrant pursuant to Section 14 hereof, this Warrant shall be exercisable in whole or in part (i) for Qualified Securities (as defined below) at any time following the consummation by the Company of a Qualified Financing (as defined below) or (ii) for shares of the Company Common Stock at (A) anytime following the Maturity Date (as defined in the Note), (B) in connection with any Change of Control or initial public offering if no Qualified Financing has occurred prior to such date, or (C) in connection with any Event of Default under the Note if no Qualified Financing has occurred prior to such date.

 

 

 

 

(c)   Exercise Price .  The exercise price for the Shares (the “ Exercise Price ”) shall be the price per share of the Qualified Securities (as defined below).

 

(d)   Qualified Financing .  The term “ Qualified Financing ” is any equity financing, consummated prior to the expiration of this Warrant pursuant to Section 14 hereof, pursuant to which the Company sells shares of a series of preferred stock in a transaction or series of related transactions with an aggregate sales price of not less than $1,000,000, excluding cancellation of indebtedness or conversion of any and all convertible bridge notes which are converted into preferred stock (including the Notes), and with the principal purpose of raising capital (a “ Qualified Financing ”) .  The term “ Qualified Securities ” means the equity securities issued in a Qualified Financing.

 

(e)   The Shares .  The term “ Shares ” shall mean   shares of Qualified Securities.

 

3.   Method of Exercise .  While this Warrant remains outstanding and exercisable in accordance with Section 2 above, the Holder may exercise, in whole or in part, the purchase rights evidenced hereby.  Such exercise shall be effected by:

 

(i)   the surrender of this Warrant, together with a notice of exercise to the Chief Financial Officer of the Company at its principal offices; and

 

(ii)   the payment to the Company of an amount equal to the aggregate Exercise Price for the number of Shares being purchased.

 

4.   Net Exercise .                                In lieu of cash exercising this Warrant, the Holder may elect to receive Shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of Shares computed using the following formula:

 

 

Y --

The number of Shares purchasable under this Warrant.

 

A --

The fair market value of one Share.

 

B --

The Exercise Price (as adjusted to the date of such calculations).

 

For purposes of this Section 4, the fair market value of a Share shall mean the average of the closing bid and asked prices of Shares quoted in the over-the-counter market in which the Shares are traded or the closing price quoted on any exchange on which the Shares are listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten (10) trading days prior to the date of determination of fair market value (or such shorter period of time during which such stock was traded over-the-counter or on such exchange).  If the Shares are not traded on the over-the-counter market or on an exchange, the fair market value shall be the price per Share that the Company could obtain from a willing buyer for Shares sold by the Company from authorized but unissued Shares, as such prices shall be determined in good faith by the Company’s Board of Directors.

 

 

 

 

5.   Certificates for Shares .  Upon the exercise of the purchase rights evidenced by this Warrant, one or more certificates for the number of Shares so purchased shall be issued as soon as practicable thereafter, and in any event within thirty (30) days of the delivery of the subscription notice.

 

6.   Issuance of Shares .  The Company covenants that the Shares, when issued pursuant to the exercise of this Warrant, will be duly and validly issued, fully paid and nonassessable and free from all taxes, liens, and charges with respect to the issuance thereof.

 

7.   Adjustment of Exercise Price and Number of Shares .  The number of and kind of securities purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as follows:

 

(a)   Subdivisions, Combinations and Other Issuances .  If the Company shall at any time prior to the expiration of this Warrant subdivide the Shares, by split-up or otherwise, or combine its Shares, or issue additional shares of its Shares as a dividend, the number of Shares issuable on the exercise of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination.  Appropriate adjustments shall also be made to the purchase price payable per Share, but the aggregate purchase price payable for the total number of Shares purchasable under this Warrant (as adjusted) shall remain the same.  Any adjustment under this Section 7(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.

 

(b)   Reclassification, Reorganization and Consolidation .  In case of any reclassification, capital reorganization, or change in the capital stock of the Company (other than as a result of a subdivision, combination, or stock dividend provided for in Section 7(a) above), then the Company shall make appropriate provision so that the Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities and property receivable in connection with such reclassification, reorganization, or change by a holder of the same number of Shares as were purchasable by the Holder immediately prior to such reclassification, reorganization, or change.  In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the purchase price per Share payable hereunder, provided the aggregate purchase price shall remain the same.

 

(c)   Notice of Adjustment .  When any adjustment is required to be made in the number or kind of Shares purchasable upon exercise of the Warrant, or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of Shares or other securities or property thereafter purchasable upon exercise of this Warrant.

 

 

 

 

8.   No Fractional Shares or Scrip .  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor on the basis of the Exercise Price then in effect.

 

9.   Representations of the Company .  The Company represents that all corporate actions on the part of the Company, its officers, directors and stockholders necessary for the sale and issuance of this Warrant have been taken.

 

10.   Representations and Warranties by the Holder .  The Holder represents and warrants to the Company as follows:

 

(a)   This Warrant and the Shares issuable upon exercise thereof are being acquired for its own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act of 1933, as amended (the “ Act ”).  Upon exercise of this Warrant, the Holder shall, if so requested by the Company, confirm in writing, in a form satisfactory to the Company, that the securities issuable upon exercise of this Warrant are being acquired for investment and not with a view toward distribution or resale.

 

(b)   The Holder understands that this Warrant and the Shares have not been registered under the Act by reason of their issuance in a transaction exempt from the registration and prospectus delivery requirements of the Act pursuant to Section 4(2) thereof and/or Regulation D promulgated thereunder, and that they must be held by the Holder indefinitely, and that the Holder must therefore bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Act or is exempted from such registration.

 

(c)   The Holder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of this Warrant and the Shares purchasable pursuant to the terms of this Warrant and of protecting its interests in connection therewith.

 

(d)   The Holder is able to bear the economic risk of the purchase of the Shares pursuant to the terms of this Warrant.

 

(e)   The Holder is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Act.

 

11.   Restrictive Legend .

 

The Shares (unless registered under the Act) shall be stamped or imprinted with a legend in substantially the following form:

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

If the Holder is party to any voting agreement, co-sale agreement, investor rights agreement or other agreement with the Company requiring that specified legends be placed upon securities held by the Holder, the Shares will also contain such legends.

 

 

 

 

12.   Warrants Transferable .  Subject to compliance with the terms and conditions of this Section 12 and any other agreements to which the Holder is a party, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the Holder (except for transfer taxes), upon surrender of this Warrant properly endorsed or accompanied by written instructions of transfer.  With respect to any offer, sale or other disposition of this Warrant or any Shares acquired pursuant to the exercise of this Warrant prior to registration of such Warrant or Shares, the Holder agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holder’s counsel, or other evidence, if reasonably requested by the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state securities law then in effect) of this Warrant or the Shares and indicating whether or not under the Act certificates for this Warrant or the Shares to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with such law.  Upon receiving such written notice and reasonably satisfactory opinion or other evidence, if so requested, the Company, as promptly as practicable, shall notify such holder that such holder may sell or otherwise dispose of this Warrant or such Shares, all in accordance with the terms of the notice delivered to the Company.  If a determination has been made pursuant to this Section 12 that the opinion of counsel for the holder or other evidence is not reasonably satisfactory to the Company, the Company shall so notify the holder promptly with details thereof after such determination has been made.  Each certificate representing this Warrant or the Shares transferred in accordance with this Section 12 shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless in the aforesaid opinion of counsel for the holder, such legend is not required in order to ensure compliance with such laws.  The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

 

13.   Rights of Stockholders .  The Holder shall not be entitled, as a Warrant holder, to vote or receive dividends or be deemed the holder of the Shares or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein.

 

 

 

 

14.   Expiration of Warrant; Notice of Certain Events Terminating This Warrant .

 

(a)   This Warrant shall expire and shall no longer be exercisable upon the earlier to occur of:

 

(i)   5:00 p.m., Mountain Standard time, on the fifth anniversary of the issuance of this Warrant;

 

(ii)   Any Change of Control; or

 

(iii)   The initial public offering of the Company’s Common Stock.

 

(b)   The Company shall provide at least ten (10) days prior written notice of any event set forth in Section 14(a)(ii) or (iii).

 

15.   Notices .  All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S.  Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to the Holder, at the Holder’s address as set forth on the Schedule of Investors to the Purchase Agreement, and (ii) if to the Company, at the address of its principal corporate offices (attention: President) or at such other address as a party may designate by ten days advance written notice to the other party pursuant to the provisions above.

 

16.   Registration Rights Agreement .  The registration rights of the Holder (including Holders’ successors) with respect to the Common Stock issuable upon conversion of the Shares issuable upon exercise of this Warrant will be the same as granted to the holders of Shares issued in the Qualified Financing.

 

17.   Governing Law .  This Warrant and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the laws of the State of Utah, without regard to the conflicts of law provisions of the State of Utah or of any other state.

 

18.   Rights and Obligations Survive Exercise of Warrant.   Unless otherwise provided herein, the rights and obligations of the Company, of the Holder and of the holder of the Shares issued upon exercise of this Warrant, shall survive the exercise of this Warrant.

 

[Signature Page follows]

 

 

 

 

Issued this September 25, 2009

 

HZO, INC.

a Delaware corporation

By:     /s/Robert G. Pedersen, II                                               

              Robert G. Pedersen II, President

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT A

 

NOTICE OF EXERCISE

TO:

hZo, Inc.

3855 South 500 West, Suite J

Salt Lake City, UT 84115

 

1.           The undersigned hereby elects to purchase __________ Shares of _____________ pursuant to the terms of the attached Warrant.

 

2.           Method of Exercise (Please initial the applicable blank):

 

___

The undersigned elects to exercise the attached Warrant by means of a cash payment, and tenders herewith payment in full for the purchase price of the shares being purchased, together with all applicable transfer taxes, if any.

 

___

The undersigned elects to exercise the attached Warrant by means of the net exercise provisions of Section 4 of the Warrant.

 

3.           Please issue a certificate or certificates representing said Shares in the name of the undersigned or in such other name as is specified below:

 

_________________________________

(Name)

 

_________________________________

 

_________________________________

(Address)

 

4.           The undersigned hereby represents and warrants that the aforesaid Shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale, in connection with the distribution thereof, and that the undersigned has no present intention of distributing or reselling such Shares and all representations and warranties of the undersigned set forth in Section 10 of the attached Warrant (including Section 10(e) thereof) are true and correct as of the date hereof.

 

______________________________

(Signature)

 

______________________________

(Name)

 

______________________________

______________________________

(Date)

(Title)

 

EXHIBIT B

 

FORM OF TRANSFER

(To be signed only upon transfer of Warrant)

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _______________________________________________ the right represented by the attached Warrant to purchase ____________ shares of  ________________________ of hZo, Inc., a Delaware corporation to which the attached Warrant relates, and appoints ______________ attorney to transfer such right on the books of __________, with full power of substitution in the premises.

 

 

Dated: ____________________

 

 

(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

 

Address:                 

 

 

 

 

Signed in the presence of:

 

 

 

 

 

 

Exclusive Marketing & Distribution Agreement

 

This Exclusive Marketing & Distribution Agreement (“ Agreement ”) is entered into as of this 25th day of September 2009 (the “ Effective Date ”), by and between hZo, Inc., a Delaware Corporation (“ Company ”) and ZAGG, Inc., a Delaware corporation, (“ ZAGG ”).

 

Recitals

 

A.           ZAGG is in the business of, among other things, providing marketing, promotional and distribution services in connection with the application of protective coatings to consumer electronic and hand-held devices (the “ Marketing Services ”).

 

B.           ZAGG identified the opportunity to market certain technology pertaining to the development and application of a protective coating to certain goods and products ( as the same may be modified or updated from time to time, the “ Technology ”) and provided certain funding to facilitate the formation of Company and enable Company to become the licensee or owner, as applicable, of all right, title, and interest in and to the Technology (the “ ZAGG Investment ,” as defined in more detail in Section 2 below).

 

C.           In consideration of the ZAGG Investment, Company desires to engage ZAGG to provide the Marketing Services to Company for branding, promotion, sales and distribution and to develop business channels for the Technology in the specific market segments set forth in Exhibit A (the “ Market Segment ”), as such may be amended by ZAGG and Company from time to time, upon the terms and subject to the conditions contained in this Agreement.

 

D.           ZAGG desires to provide the Marketing Services to Company with respect to the Market Segment , subject to the terms and conditions of this Agreement.

 

Agreement:

 

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

 

1.   Appointment .  Subject to the terms and conditions set forth in this Agreement and closing of the ZAGG Investment (as defined below), as of the Effective Date, Company hereby appoints ZAGG, on an exclusive   basis to: ( a ) market and promote the Technology to potential customers within the Market Segment (each a “ Customer ”); and ( b ) refer such Customers to Company (collectively, the “ Appointment ”).

 

2.   Condition Precedent .  The continued Appointment of ZAGG is conditioned upon the ZAGG Investment, which shall consist of the purchase by ZAGG of at least $3,150,000.00 in shares of Series A Preferred Stock of the Company .  In the event that the ZAGG Investment is not received by Company by February 25, 2010, either party may terminate this Agreement in all respects by delivering written notice of termination to the other party .

 

3.   First Right of Refusal of Appointment .  In the event that either Company or ZAGG identifies any applications or opportunities to market or promote the Technology outside the Market Segment (each a “ Proposed New Market Segment ”), then the party identifying the Proposed New Market Segment shall inform the other party of the existence of such Proposed New Market Segment and ZAGG shall have thirty (30) days to provide to Company either: (a) a written proposal including terms, conditions and pricing on which ZAGG would be willing to pursue marketing and promotions in the Proposed New Market Segment (“ ZAGG Proposal ”), or (b) a written waiver by ZAGG of any right to pursue marketing and promotions within the Proposed New Market Segment.  If Company accepts the ZAGG Proposal, the Proposed New Market Segment shall be added to Exhibit A and shall be part of the “Market Segment” for the purposes of this Agreement.  In the event that Company rejects the ZAGG Proposal, which Company may only do if the ZAGG Proposal is materially less favorable to Company than the terms, conditions or pricing in place for the Market Segment, or if ZAGG fails to provide a written waiver, then Company may market and promote the Technology for any application in the Proposed New Market Segment through its own direct sales organization or through third parties.  Notwithstanding the foregoing, other than the Market Segment licensed to ZAGG as defined in Exhibit A, the Company may respond to and fulfill unsolicited requests for the Technology for applications or from potential customers within the Market Segment provided that the Company first immediately notifies ZAGG of any such request and obtains ZAGG’s express prior written consent to accept and fulfilling such request.  ZAGG acknowledges that Company has made no representations about the any revenue that ZAGG may receive or any profit or income that ZAGG may realize , if any, as an independent representative of Company and ZAGG assumes all financial risks under this Agreement.

 

 

 

 

 

4.   Marketing Budget .  The parties agree that in certain circumstances Company may desire to engage ZAGG to perform additional services, either beyond the Marketing Services or outside the Market Segment (“ Additional Services ”). In the event that Company engages ZAGG to perform such Additional Services, then Company and ZAGG shall mutually agree upon a marketing budget on a per project or marketing campaign basis (“ Supplemental Budget ”) to be distributed to ZAGG in accordance with the terms of such Supplemental Budget, including, if applicable, payments by Company to ZAGG of royalties or other fees as may be mutually agreed upon between the parties from time to time for the use by Company of any ZAGG Mark (as defined below) in connection with products or services not directly distributed by ZAGG.  For the avoidance of doubt, the Supplemental Budget shall not apply in the ordinary course of the provision by ZAGG of the Marketing Services in the Market Segment except as agreed upon between the parties on a project by project basis.

 

5.   Personnel .  Personnel employed by ZAGG to perform the Marketing Services are not employees of Company and ZAGG assumes full responsibility for their acts, daily interaction, and management control.  Without limiting the generality of the foregoing, ZAGG shall not be treated as an employee of Company for state or federal income tax purposes, nor will ZAGG be an employee of Company for purposes of the Federal Unemployment Tax Act, Federal Insurance Contributions Act, the Social Security Act or any other federal, state or local unemployment or employment security act.   ZAGG shall inform its personnel that they are not entitled to the provisions of any Company employee benefits.  Company will not be responsible for worker’s compensation, health or disability benefits, retirement or pension benefits, unemployment insurance or withholding income taxes and Social Security for said personnel.   ZAGG shall identify itself as an authorized referral representative of Company only with respect to the Marketing Services covered by this Agreement and shall otherwise identify itself as an independent business.

 

6.   Conflict of Interest .  ZAGG warrants to Company that ZAGG does not currently distribute, sell, or promote any products, services or technologies that directly compete with the Technology (“ Competing Technology ”) within the Market Segment.  ZAGG warrants that prior to distributing, selling, or promoting any Competing Technology to the Technology within the Market Segment , ZAGG will provide Company with written notice thereof.

 

7.   Changes in the Technology .  ZAGG shall have the right to market, distribute, sell or offer for sale and promote updated changes or modifications to the Technology, update or discontinue any of the Technology from time to time and Company shall notify ZAGG in writing of any such modifications, updates or discontinuation s of the Technology that may affect the marketing efforts of ZAGG .

 

8.   Obligations of ZAGG .

 

8.1.   General .  ZAGG will use its best efforts to refer, market and promote the Technology to Customers for applications within the Market Segment and to refer such Customers to Company in accordance with the terms and conditions of this Agreement (the “ Promotion Obligations ”).  Without limiting the generality of the foregoing, the Promotion Obligations shall, at a minimum, require ZAGG to execute and complete the following promotional activities and to develop all advertising, promotional, sales and collateral literature related thereto and necessary therefore:

 

 

 

 

8.1.1.   E-Mail . Subject to Section 4 , ZAGG shall, at its sole expense, develop, design, print and fulfill an email campaign, the purpose of which shall be to introduce the Technology to the Market Segment.

 

8.1.2.   Collateral Materials . Subject to Section 4 , ZAGG,  at its sole expense, unless otherwise agreed upon in writing between the parties, shall develop, design, print and fulfill marketing collateral materials relating to the Technology, and provide sufficient quantities to each of its independent sales representatives or contractors.

 

8.1.3.   Tradeshow Marketing . ZAGG, at its sole cost and expense unless otherwise agreed upon in writing between the parties,  shall prominently display and diligently promote the Technology at any   applicable tradeshows that ZAGG attends during the Term (as defined below) .

 

8.1.4.   Customer Relations .  ZAGG shall be governed in all dealings with members of the public by the highest standards of honesty, integrity and fair dealing, and shall do nothing which would tend to discredit, dishonor, reflect adversely upon or in any manner injure the reputation of Company or any of its officers, partners, directors, managers, stockholders, members, affiliates or representatives (the “ Related Parties ”) or the Technology.  Without limiting the generality of the foregoing, ZAGG will: (a) refrain from and avoid any deceptive, misleading, disparaging or unethical practices that are or might be detrimental to Company or its Related Parties, the Technology, or the public; (b) make no false or misleading representations with regard to Company or the Technology; (c) not publish or employ, or cooperate in the publication or employment of, any misleading or deceptive advertising material with regard to Company or the Technology; and (d) make no representations, warranties or guarantees to Customers or to the trade with respect to the specifications, features or capabilities of the Technology that are inconsistent with any literature or specifications distributed by Company .  ZAGG will maintain records of its marketing activities hereunder and will permit Company to review such records upon reasonable prior written notice to determine ZAGG’s compliance with the terms and conditions of this Agreement.

 

8.1.5.   Compliance with Laws, Procedures and Good Business Practices .  ZAGG shall at all times conduct its business, and perform its obligations under this Agreement, in compliance with all applicable laws and regulations of the international, federal, state and municipal governments, including without limitation the CAN-SPAM Act of 2003, and will not make any false or misleading representations to customers or others regarding Company or the Technology.  Without limiting the generality of the foregoing, ZAGG shall be responsible for compliance with all applicable laws related to: (a) product labels (except for law regarding disclosure of contents); (b) the use of the logos, trademarks or names used in connection with the sale or marketing of the Technology; (c) any necessary or mandatory warning labels or symbols which must be used in connection with the advertising or marketing of the Technology; and (d) marketing, sales, and distribution of the Technology.  ZAGG further agrees that ZAGG and its Related Parties will comply with any reasonable standards or procedures established by Company for the referral of Customers.

 

8.1.6.   ZAGG Expenses .  Other than those Marketing Budgets approved by hZo for ZAGG to promote, brand and provide initial market introduction ZAGG shall pay all costs and expenses incurred by it in connection with the performance of its obligations under this Agreement

 

8.1.7.   Sales History and Customer Reports .  Within thirty (30) business days after the end of each calendar quarter during the Term, ZAGG, at its sole cost and expense, will provide Company with sales reports for the Technology for the immediately preceding calendar quarter, including customer lists, in form and substance reasonably acceptable to Company.

 

 

 

 

 

8.1.8.   Forecasts .  If requested by Company, ZAGG will provide to Company, within 10 business days after the end of each calendar quarter, a 180 day rolling forecast showing prospective orders.

 

8.1.9.   Advising of Changes .  ZAGG will promptly advise Company of: (a) any changes in ZAGG’s status, organization, key personnel and similar matters through it’s routine notices and publication required by relevant securities law related to publicly traded companies and (b) any significant political, regulatory, financial, legislative, industrial or other events in the Market Segment that could affect the mutual business interests of ZAGG and Company, whether harmful or beneficial.

 

8.1.10.   Facilities .  ZAGG will provide and be solely responsible for: (a) such facilities, employees, and business organization, and (b) except as otherwise provided herein, such permits, licenses, and other forms of clearance, if any, as it deems necessary for the conduct of its business operations in accordance with this Agreement.

 

8.1.11.   Book and Records .  During the Term, and for a period of one year after the expiration or termination of this Agreement, ZAGG will maintain and make available to Company and its representatives upon written request complete and accurate books, records, and accounts relating to the business of ZAGG with respect to the Technology.

 

8.1.12.   No Modification or Reverse Engineering .  ZAGG will not, and will cause its employees, agents, subcontractors, and representatives not to, modify, reverse engineer or affirmatively attempt to engineer or work around, the Technology. Notwithstanding the foregoing, ZAGG hereby expressly agrees and acknowledges that in the event ZAGG breaches this Section, Company shall own, and ZAGG shall and hereby does assign, all intellectual property rights relating to the results of any such breach, including, but not limited to, all rights in patents, trademarks, copyrights and trade secrets.

 

9.   License Grants .

 

9.1.   License to Co-brand the Product .  Company hereby grants to ZAGG an exclusive right and license (the “ License ”) within the Market Segment   to use, and to offer the Technology to the Customers under the trade names, logos, service marks and trademarks set forth on Exhibit C, as such may be amended and updated by the parties from time to time to include any new trade names, logos, service marks and trademarks developed by or on behalf of ZAGG or by Company in connection with the Technology  (“ Company Marks ”) in accordance with the terms of this Section; provided, however , that ZAGG shall retain exclusive ownership rights in and to the ZAGG Materials including, without limitation, all copyrights, trademarks, trade dress and other proprietary designations and legends as may be placed upon the Technology by ZAGG.

 

9.2.   Use of Company Marks .   During the Term, ZAGG will have the right to indicate to the public that it is an authorized marketing licensee of the Technology and/or agent of Company.  ZAGG may advertise (within the Market Segment) the Technology using the Company Marks in connection with the packaging, labeling, marketing, promotion, sale and distribution   of any product that includes the Technology.  For the avoidance of doubt, ZAGG may use the Company Marks in connection with Internet advertising or marketing materials (“ Online Materials ”) only to the extent such Online Materials are limited in scope to targeting customers, prospects or potential customers that are within the Market Segment.  ZAGG will not alter or remove any Company Marks.  At the termination or expiration of this Agreement, ZAGG will discontinue using or displaying the Company Marks on any packaging,   labeling, or any marketing materials.

 

9.3.   Use of ZAGG Marks .  During the Term, with written authorization, the Company may advertise the promotion and sales of the Technology with the ZAGG or stylized “Z” Mark (the “ZAGG Marks”) indicating a ZAGG trademark for packaging, labeling, marketing, promotion, sale and distribution of any agreed upon product or service not otherwise exclusively licensed to ZAGG.

 

 

 

 

10.   Ownership .

 

10.1.   Company Ownership .  ZAGG acknowledges and agrees that Company and its licensors are, and shall remain, the sole and exclusive owners of all right, title and interest in and to the Company Marks and the Technology (collectively, “ Company Property ”).  Except as expressly provided herein, no rights in or to the Company Property, including any use thereof, shall be transferred to ZAGG and ZAGG specifically disclaims any ownership right to any Company Property.  Any use of the Company Property by ZAGG, as permitted herein, shall inure to the benefit of Company.  To the extent any Company Mark is incorporated in any materials developed for, by or on behalf of ZAGG (“ ZAGG Materials ”), in accordance with the terms of this Agreement, Company hereby grants to ZAGG a worldwide fully paid-up, sublicensable license to use, publish, reproduce, distribute, and prepare derivative works based upon such ZAGG Materials.  ZAGG shall cease the use of the Company Property, or any portion thereof, upon the expiration or termination of this Agreement.  Without limiting the generality of the foregoing, in the event ZAGG conceives, develops or reduces to practice any feature, enhancement, novel combination or use, or modification of the Technology (each a “ Derivative Work ”), ZAGG hereby expressly agrees and acknowledges that, as between Company and ZAGG: (a) Company shall own, and ZAGG shall and hereby does assign, all intellectual property rights relating to such Derivative Works, including, but not limited to, all rights in patents, trademarks, copyrights and trade secrets; and (b) such Derivative Work shall be deemed to be included within the definition of Company Property and may, at Company’s sole discretion, be licensed to ZAGG pursuant to this Agreement.  During the Term (as defined below) and after its expiration or termination, ZAGG will (i) neither challenge nor assist others in challenging any Company Marks and (ii) not attempt to register any trademarks, service marks, or trade names confusingly similar to any Company Marks.

 

10.2.   Infringements .  ZAGG will notify Company promptly in writing if it becomes aware of any infringement of any Company Property.  Company will have the sole right to take action regarding any alleged infringement of any Company Property or other acts of unfair competition, and Company will be entitled to all damages related thereto.  ZAGG will fully cooperate with Company in any such action.  Notwithstanding the foregoing, if ZAGG notifies Company of any infringement of any Company Property and Company fails to take action regarding such infringement within sixty (60) days after being notified in writing by ZAGG, then ZAGG will have the right to take action in such regard so long as ZAGG receives the prior written approval of Company.

 

10.3.   ZAGG Ownership .  Notwithstanding anything to the contrary contained herein, Company acknowledges and agrees that ZAGG and its licensors are, and shall remain, the sole and exclusive owners of all right, title and interest in and to the ZAGG Marks.  Except as expressly provided herein, no rights in or to the ZAGG Marks, including any use thereof, shall be transferred to Company and Company specifically disclaims any ownership right to any ZAGG Marks.  Any use of the ZAGG Mark by Company, as permitted herein, shall inure to the benefit of ZAGG.  To the extent any ZAGG Mark is incorporated in any materials developed for, by or on behalf of Company pursuant to Section 9.3, ZAGG hereby grants to Company a worldwide fully paid-up, sublicensable license to use, publish, reproduce, distribute, and prepare derivative works based upon such materials.  Company shall cease the use of the ZAGG Marks upon the expiration or termination of this Agreement.  During the Term (as defined below) and after its expiration or termination, Company will (a) neither challenge nor assist others in challenging any ZAGG Marks and (z) not attempt to register any trademarks, service marks, or trade names confusingly similar to any ZAGG Marks.

 

11.   Prices; Payment; Delivery .

 

11.1.   Prices .  ZAGG shall pay such wholesale prices as the parties may set forth on Exhibit D, from time to time, as such exhibit D may be amended by the parties from time to time thereafter (the “ Purchase Price ”).  The Purchase Price is fully inclusive of the License, as described in Section 9.1 above and, except for such Supplemental Budgets as may be agreed upon between the parties from time to time for Additional Services, no royalty or compensation shall be due under this Agreement other than the applicable Purchase Price.

 

 

 

 

11.2.   Payment . Full payment of the Purchase Price will be made by ZAGG to Company within sixty (60) days from the date that Company ships any products incorporating the Technology (“ Product ”) to ZAGG.  The Purchase Price does not include any taxes, duties, fees or other charges imposed under any law, regulation, code or other legal requirement that may be applicable to Products (“ Assessments ”).  ZAGG shall pay when due, and indemnify and hold Company harmless from any Assessments related to ZAGG’s performance of the Marketing Services pursuant to this Agreement.  If ZAGG fails to pay any Assessments when due, and Company receives any Assessment from any governmental body, then Company shall give written notice of the Assessment to ZAGG.

 

11.3.   Delivery .  Products will be delivered F.O.B., to any shipment origination point mutually agreed upon between the parties.  The provisions of any other documents (including, but not limited to, purchase orders and invoices) to the contrary notwithstanding, Products will be delivered by Company and accepted by ZAGG in accordance with the terms of this Agreement.

 

11.4.   Title and Risk of Loss .  Title to, and risk of loss for, the Products shall pass from Company to ZAGG upon delivery of Products by Company to any shipment origination point.  ZAGG shall be responsible for and shall pay any and all Assessments with regard to the purchase and delivery of Products by Company to ZAGG.

 

12.   Performance Criteria .  For each calendar year for which this Agreement remains in effect, the parties shall agree upon the applicable minimum annual sales levels or such other performance criteria as the parties may deem appropriate (“ Sales Commitments ”) that ZAGG must satisfy during the subsequent calendar year in order for ZAGG to remain the exclusive provider of Marketing Services in the Market Segment.  In the event that, as of the 31st day of December of any calendar year Company determines that ZAGG has failed to meet the Sales Commitments for the preceding calendar year, then Company may, in its sole discretion: (a) convert ZAGG’ appointment to a non-exclusive status, or (b)  terminate this Agreement, in each case solely as to the portion of the Market Segment for which ZAGG failed to meet the Sales Commitments.

 

13.   Advertising Materials .  Company agrees to furnish ZAGG with relevant Company sales, online and/or promotional literature which Company in the normal course of business develops with respect to the Technology to assist ZAGG in creating and publishing, at ZAGG’s sole cost and expense, the ZAGG Materials.

 

14.   Confidentiality .  The parties recognize and agree that in connection with the relationships described in this Agreement, each party and its employees may have access to highly sensitive, confidential business, financial, and other proprietary information of the other party which, if used without the other party ’s consent, would cause severe and irreparable harm to such other party , including, without limitation:  (1)  know-how, trade secrets, formulas, programs, processes, techniques, methodologies, inventions and research; (2) business information, including, but not limited to, strategies, projections, markets, sales, profits, costs, customer lists and business plans; (3) plans for future development; and (4) other information of a similar sensitive nature and not generally known by third parties (“ Confidential Information ”).  Consequently, each party, for itself and its employees, agrees to keep all such Confidential Information confidential; to not use the Confidential Information for any purpose other than as permitted under this Agreement; and not to disclose such Confidential Information to any third party without the prior written consent of the other party .

 

 

 

 

15.   Warranties; Disclaimers .

 

15.1.   Parties Authority to Enter Agreement .   Each party represents and warrants that it has the authority to enter into this Agreement and that such party does not have any knowledge of the existence of any other contract, agreements, or limitations which would prevent such party from carrying out its responsibilities under this Agreement.

 

15.2.   ZAGG’s Warranties .  ZAGG represents and warrants that: (i) it will perform its obligations under this Agreement in conformity with industry standards; (ii) it has sufficient technical and professional expertise to enable it to perform its obligations under this Agreement, (iii) it will comply with all laws, rules and regulations applicable to its business and its performance of its duties hereunder; and (iv) it will not violate or infringe any third party’s patent, copyright, trademark, trade secret or other intellectual property or other proprietary rights in performing this Agreement.  ZAGG has not relied upon any statements or representations by Company in deciding to enter into this Agreement.

 

15.3.   EXCEPT AS EXPRESSLY SET FORTH HEREIN, NEITHER PARTY MAKES ANY WARRANTY TO THE OTHER PARTY WITH RESPECT TO THIS AGREEMENT OR THE MARKETING SERVICES, COMPANY PROPERTY OR TECHNOLOGY, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT.  NO REPRESENTATION OR AFFIRMATION OF FACT, INCLUDING BUT NOT LIMITED TO STATEMENTS REGARDING SUITABILITY FOR USE OR PERFORMANCE OF THE SERVICES, SHALL BE DEEMED TO BE A WARRANTY BY COMPANY OR ITS AFFILIATES FOR ANY PURPOSE OR GIVE RISE TO ANY LIABILITY.  No person is authorized to change or otherwise modify the warranties set forth herein or to assume any other liability on behalf of Company

 

15.4.   Limitation of Liability .  IN NO CIRCUMSTANCE AND UNDER NO LEGAL THEORY (TORT, CONTRACT OR OTHERWISE), SHALL COMPANY OR ITS RELATED PARTIES BE LIABLE FOR ANY SPECIAL, PUNITIVE, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING ANY LOST PROFITS, LOSS OF USE, OR LOSS OF OPPORTUNITY) ARISING FROM OR OTHERWISE RELATED TO THIS AGREEMENT EVEN IF COMPANY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  IN NO EVENT SHALL COMPANY’S CUMULATIVE LIABILITY HEREUNDER EXCEED THE REVENUE RECEIVED BY ZAGG AS A RESULT OF THE APPOINTMENT IN THE TWELVE (12) MONTH PERIOD PRECEDING THE DATE OF THE APPLICABLE CLAIM.  IN NO EVENT SHALL COMPANY OR ITS RELATED PARTIES BE LIABLE FOR OR IN CONNECTION WITH THE OFFER, SALE, MANUFACTURE, DISTRIBUTION, PROVISION OR USE OF ANY ZAGG OR THIRD PARTY PRODUCTS OR SERVICES WHETHER BY OR ON BEHALF OF COMPANY, ZAGG OR ANY THIRD PARTY, AND WHETHER CONDUCTED ONLINE, VIA MAIL OR OTHERWISE.  ZAGG ACKNOWLEDGES AND AGREES THAT THESE LIMITATIONS REFLECT A FAIR ALLOCATION OF RISK AND THAT COMPANY WOULD NOT ENTER INTO THIS AGREEMENT WITHOUT THESE LIMITATIONS ON ITS LIABILITY, AND AGREES THAT THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE.  BECAUSE SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION OF CERTAIN CATEGORIES OF DAMAGES, IN SUCH JURISDICTIONS, ZAGG AGREES THAT COMPANY’S LIABILITY SHALL BE LIMITED TO THE FULLEST EXTENT PERMITTED BY SUCH JURISDICTION.

 

16.   Indemnification .

 

16.1.   Company’s Indemnification .  Company will indemnify, defend, and hold harmless ZAGG and its directors, officers, employees, agents, consultants, advisors, legal counsel, and stockholders, as well as the controlling persons and affiliates of each of the foregoing (collectively, the “ ZAGG Indemnified Persons ”) against and from, and will pay to the ZAGG Indemnified Persons the amount of, any loss, liability, claim, damage, expense (including costs of investigation and defense and reasonable attorneys’ fees), whether or not involving a third-party claim , (collectively “ Damages ”) arising out of or resulting from any act or omission of Company, its agents or employees with respect to the Technology.

 

 

 

 

16.2.   ZAGG’s Indemnification .  ZAGG will indemnify, defend, and hold harmless Company and its directors, officers, employees, agents, consultants, advisors, legal counsel, and stockholders, as well as the controlling persons and affiliates of each of the foregoing (collectively, the “ Company Indemnified Persons ”) against and from, and will pay to the Indemnified Persons the amount of Damages arising, directly or indirectly, from or in connection with: (a) any breach of any representation or warranty made by the ZAGG in this Agreement; (b) any breach by ZAGG, its employees, representatives, subcontractors, agents, and others under its control of any covenant or obligation of ZAGG in this Agreement; (c) any claim made by any third party related to the conduct of ZAGG’s business, including, without limitation, with respect to any disputes between Customer(s) and ZAGG and/or ZAGG’s other products or services; (d) any claim based upon the alleged wrongful acts, fraud, false advertising, or misrepresentations of ZAGG in connection with this Agreement; (e) any acts or omissions of ZAGG, its employees or agents (including without limitation negligence or strict liability and including any injury to any person (including, but not limited to death or property) related to the subject matter of this Agreement, including, without limitation, any alleged violation of any applicable law or infringement of any third party’s intellectual property or other rights; (f) any warranty made by ZAGG, its employees or agents relating to the Marketing Services; or (g) any warranty made by ZAGG, its employees or agents relating to the Technology that is inconsistent with any warranties or statements made by Company or which was not first authorized in writing by Company.

 

17.   Term and Termination .

 

17.1.   Term .  Subject to Sections 1017.2, 17.4, and 17.5, this Agreement will continue in force for a fixed term of five (5) years from the Effective Date (the “ Initial Term ”).  At the end of the Term, this Agreement will automatically renew for subsequent terms of one (1) calendar year (each a “ Renewal Term ” and together with the Initial Term, the “ Term ”) unless either Party provides the other with notice of non-renewal at least sixty (60) days prior to the expiration of the then current Term.

 

17.2.   Termination for Cause .  If either party defaults in the performance of a provision of this Agreement, then the non-breaching party may give written notice to the breaching party to terminate this Agreement if such default is not cured within 30 days after such notice.  If the default is not cured during the applicable period, then this Agreement will automatically terminate at the end of such period without any further actions being required by any party.

 

17.3.   Termination for Convenience .  Except for the Marketing Services in the Market Segment, Company may terminate this Agreement for any reason after giving ZAGG 60 days’ written notice of such termination.

 

17.4.   Failure to meet Sales Commitments .  If on the last day of any calendar year, ZAGG has failed to meet the applicable Sales Commitments for such calendar year, then Company may, in its sole discretion terminate this Agreement or amend the Sales Commitments.

 

17.5.   Termination for Insolvency .  This Agreement will terminate, without notice, upon (a) the institution by or against either party of insolvency, receivership, or bankruptcy proceedings or any other proceedings for the settlement of such party’s debts, (b) a party making an assignment for the benefit of creditors, or (c) upon either party’s dissolution or ceasing to do business.

 

17.6.   Return or Destruction of Parties’ Respective Property .  Upon termination of the rights and licenses granted under this Agreement for whatever reason, each party shall promptly return to the other party all property, including any Company Property and/or ZAGG Materials, and any copies thereof.

 

17.7.   Limitation on Liability Due to Termination .  In the event of termination in accordance with any of the provisions of this Agreement, neither party will be liable to the other, because of such termination, for compensation, reimbursement or damages on account of the loss of prospective profits or anticipated sales or on account of expenditures, inventory, investments, leases or commitments in connection with the business or goodwill of Company or ZAGG.

 

 

 

 

17.8.   Survival of Certain Terms .  The provisions of Sections5, 10, 14, 15, 16, 17.7, 18.1, 18.3, 18.5, 18.6, 18.7, 18.8, 18.9, and 18.10 will survive the expiration or termination of this Agreement for any reason.  All other rights and obligations of the parties will cease upon termination of this Agreement.  Termination will not, however, relieve either party of obligations or liabilities incurred prior to the termination.

 

18.   Term and Termination .

 

18.1.   Independent Contractors .  The relationship of the Company and ZAGG established by this Agreement is that of independent contractors, and nothing contained in this Agreement will be construed to (a) give either party the power to direct or control the day-to-day activities of the other, (b) constitute the parties as partners, joint venturers, co-owners, or otherwise as participants in a joint or common undertaking, or (c) allow ZAGG to create or assume obligations on behalf of the Company for any purpose whatsoever.  ZAGG does not regard itself as a “franchisee” nor Company as a “franchisor” nor the relationship between ZAGG and Company as a “franchise.”  All sales and other agreements between ZAGG and its customers are ZAGG’s exclusive responsibility and will have no effect on ZAGG’s obligations under this Agreement.  All financial obligations associated with either party’s business are the sole responsibility of such party.

 

18.2.   Insurance .  Both Parties will maintain product liability insurance in an amount of not less than one million dollars ($1,000,000.00) for bodily injury and property damage per occurrence.  Each party shall name the other party as an additional insured.  Each party shall provide the other with a certificate of insurance evidencing this coverage and providing that it shall not be modified or cancelled without sixty (60) days prior written notice to the other party.

 

18.3.   Entire Agreement .  This Agreement sets forth the entire agreement and understanding of the parties, relating to its subject matter and supersedes all prior discussions, letters of intent or term sheets between them.  No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged.

 

18.4.   Notices .  All notices and other communications under this Agreement will be in the English language, in writing, and sent by hand-delivery, special courier (for example, Federal Express, UPS, or DHL) or facsimile, addressed as follows

 

 

Notice pursuant to this Agreement is deemed given pursuant to the following rules:  if hand-delivered, at the time of delivery; if sent by special courier, on the fifth day after delivery to the courier; and if sent by facsimile on the day of electronic acknowledgment that the facsimile is received.

 

 

 

 

 

18.5.   Assignments; Binding Effect; No Third Party Rights .  The parties agree that neither party may assign or transfer its rights and obligations under this Agreement directly or indirectly unless such party first obtains the other party’s prior written consent, which consent shall not be unreasonably withheld; any assignment contrary to the foregoing is void ab initio .  Subject to the foregoing, this Agreement will be binding upon and inure to the benefit of the parties hereto, their successors, and their assigns.  Nothing expressed or referred to in this Agreement will be construed to give any person, other than the parties, any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement.  This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties, their successors, and their assigns.

 

18.6.   Rules of Interpretation .  In this Agreement, (a) words importing the singular include the plural and vice versa ; and words importing one gender include all genders; (b) any person (to include natural persons and business entities) will be construed so as to include its and any subsequent successors, transferees, and assigns in accordance with their respective interests and in accordance with the provisions of this Agreement; (c) references to this Agreement or any other agreement or document will be construed as a reference to this Agreement or, as the case may be, such other agreement or document, as the same may have been, or may from time to time be, amended, varied, novated, replaced, or supplemented; (d) references to Sections or Exhibits will be deemed to be references to such parts of this Agreement unless the context otherwise requires, and such references are for convenience only and do not affect the interpretation of this Agreement; (e) if the day on or by which (i) a particular obligation hereunder must be fulfilled or (i) a time period provided for hereunder ends, falls on a day that is not a business day, then such obligation may be fulfilled on or by, and the end of such time period will be extended to, the next succeeding business day; and (f) except where the contrary is indicated, in this Agreement any reference to a statute or other legal requirement will be construed, at the particular time, as including a reference to any modification or extension thereof then in force and to all instruments, orders, or regulations then in force and made under or deriving validity from the relevant statute or legal requirement, as the case may be.

 

18.7.   Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State   of   Utah, other than such laws, rules, regulations or case law that would result in the application of the laws of a state other than Utah.

 

18.8.     Force Majeure .  Neither party will be responsible for any failure to perform due to unforeseen circumstances or to causes beyond that party’s control, including acts of God, war, riot, embargoes, acts of civil or military authorities, accidents, strikes, labor disputes, or shortages.  Failure to perform will be excused during the continuance of such circumstances; provided , however , that this Agreement will otherwise remain in effect; provided further , that this Section will not excuse failure to pay money due to a party under this Agreement.

 

18.9.   Severability .  If any provision of this Agreement, in whole or in part, proves to be invalid for any reason, such invalidity will affect only the portion of such provision which will be invalid.  In all other respects, this Agreement will stand as if such invalid provision had not been made, and no other portion or provision of this Agreement will be invalidated, impaired, or affected thereby.

 

18.10.   Counterparts .  This Agreement may be executed in counterparts, each of which taken together will be deemed an original instrument.  Facsimile signatures will be given the same effect as original signatures

 

I n witness whereof , the parties hereto have executed this Agreement effective as of the Effective Date.

 

 

 

 

 

hZo, Inc. By:                                                       Its:	ZAGG, Inc. By:                                                       Its:

 

 

Exhibit A

 

Market Segments

 

 

Consumer electronics goods or other related consumer goods that support or are ancillary in application to such consumer electronic goods, including cell phones, iPods, MP3 players, gaming devices, laptops, cameras, communication devices like radios, walkie-talkie devices, and other devices that that are primarily marketed for personal, entertainment,  or household purposes, and these definitions within the exclusive marketing license grant to ZAGG shall be broadly construed and liberally defined in favor of and for the benefit of ZAGG.

 

 

 

 

 

Exhibit C

 

Trademarks

 

 

 

(See Attached)

 

 

 

 

 

Exhibit d

 

Price List

 

 

 

(See Attached)

 

 

NOTE AND WARRANT PURCHASE AGREEMENT

 

THIS NOTE AND WARRANT PURCHASE AGREEMENT , dated as of September 25, 2009, (this “ Agreement ”) is entered into by and among HZO, INC. , a Delaware corporation (the “ Company ”), with its principal executive office at 3855 South 500 West, Suite J, Salt Lake City, UT 84115, and THE PERSONS AND ENTITIES LISTED ON THE SCHEDULE OF INVESTORS attached hereto as Schedule I (each an “ Investor ,” and collectively, the “ Investors ”).

 

RECITALS

 

A.           The Company has duly authorized the sale and issuance to the Investors of secured convertible promissory notes in an aggregate principal amount of up to $3,150,000 (the “ Aggregate Loan Amount ”) together with associated warrants.

 

B.           On the terms and subject to the conditions set forth herein, each Investor is willing to purchase from the Company, and the Company is willing to sell to such Investor, a secured convertible promissory note in the principal amount set forth opposite such Investor’s name on Schedule I hereto, together with a related warrant to acquire shares of the Company’s capital stock.

 

C.           Capitalized terms not otherwise defined herein shall have the meaning set forth in the form of Note (as defined below) attached hereto as Exhibit A .

 

AGREEMENT

 

NOW THEREFORE, in consideration of the foregoing, and the representations, warranties, and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows:

 

1.   The Notes and Warrants .

 

(a)   Issuance of Notes and Warrants .

 

(i)   Issuance of Notes .  At the Initial Closing (as defined below), the Company agrees to issue and sell to each of the Investors, and, subject to all of the terms and conditions hereof, each of the Investors agrees to purchase a secured convertible promissory note in the form of Exhibit A hereto (each, a “ Note ”, and collectively, the “ Notes ”) in the principal amount set forth opposite the respective Investor’s name on Schedule I hereto.  The obligations of the Investors to purchase Notes are several and not joint.

 

(ii)   Issuance of Warrants .  In consideration for the purchase by the Investors of the Notes, the Company will issue to each Investor a warrant in the form attached hereto as Exhibit B (each, a “ Warrant ” and collectively, the “ Warrants ”) to purchase from the Company up to the number of fully paid and nonassessable Shares (as defined in the Warrants) equal to thirty percent (30%) multiplied by the quotient obtained by dividing the principal amount of such Investor’s Note by the Exercise Price (as defined in the Warrants).

 

 

 

 

(iii)   Delivery .  The initial sale and purchase of the Notes shall take place at an initial closing to be held on September 25, 2009 or at such place and time as the Company and Investors purchasing a majority in interest of the principal amount of the Notes (a “ Majority in Interest ”) to be purchased at the Initial Closing shall agree(the  “ Initial Closing ”).  At the Initial Closing, the Company will deliver to each of the Investors the respective Note and Warrant, against receipt by the Company of the corresponding amount set forth on Schedule I hereto (the “ Purchase Price ”).  Each of the Notes and Warrants will be registered in such Investor’s name in the Company’s records.

 

(iv)   Subsequent Closings .  At any time after the Initial Closing and prior to the date of the ZAGG Deferred Closing, as that term is defined in the Series A Preferred Stock Purchase Agreement dated as of even date herewith between the Company and the Investors listed on Exhibit A thereto, at one or more subsequent closings, the Company may offer to sell, and the Investors may agree to purchase Notes with an aggregate principal amount of up to $2,000,000, or any portion thereof (each a “ Subsequent Closing ,” and collectively, the “ Subsequent Closings ”).

 

(v)   Delivery at Subsequent Closings .   All Notes and Warrants purchased and sold at the Subsequent Closings shall be issued pursuant to the terms and conditions set forth in this Agreement, and the representations and warranties of the Company and the Investors set forth in Sections 2 and 3 hereof shall speak as of the date of such Subsequent Closing.  Any Notes and Warrants sold and purchased pursuant to this Section 1(a)(iv) shall be deemed to be “Notes” and “Warrants” for all purposes under this Agreement.  Following each Subsequent Closing, Schedule I hereto shall be updated to reflect the principal amount of the Notes purchased in such Subsequent Closing.

 

(b)   Payments . The Company will make all cash payments due under the Notes in immediately available funds by 11:00 A.M. Mountain Standard Time on the date such payment is due in the manner and at the address for such purpose specified below each Investor’s name on Schedule I hereto, or at such other address as a Investor or other registered holder of a Note may from time to time direct in writing.

 

2.   Representations and Warranties of the Company . The Company represents and warrants to each Investor as of the date of the Closing that:

 

(a)   Due Incorporation, Qualification, etc . The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation; (ii) has the power and authority to own, lease and operate its properties and carry on its business as now conducted; and (iii) is duly qualified, licensed to do business and in good standing as a foreign corporation in each jurisdiction where the failure to be so qualified or licensed could reasonably be expected to have a Material Adverse Effect.  For purposes of this Agreement the term “ Material Adverse Effect ” means a change, event or occurrence that individually, or together with any other change, event or occurrence, has or would reasonably be expected to have a material adverse impact on the financial position, business results, operations or prospects of the Company, taken as a whole.

 

 

 

 

(b)   Authority . The execution, delivery and performance by the Company of this Agreement, each Note and each Warrant together with the Security Agreement dated as of the date hereof (the “ Security Agreement ”) to be executed by the Company (collectively the “ Transaction Documents ”) and the consummation of the transactions contemplated thereby (i) are within the power of the Company and (ii) have been duly authorized by all necessary actions on the part of the Company.

 

(c)   Enforceability . Each Transaction Document executed, or to be executed, by the Company has been, or will be, duly executed and delivered by the Company and constitutes, or will constitute, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

 

(d)   Non-Contravention . The execution and delivery by the Company of the Transaction Documents executed by the Company and the performance and consummation of the transactions contemplated thereby do not and will not (i) violate the Restated Certificate, as defined below, or Bylaws of the Company or any material judgment, order, writ, decree, statute, rule or regulation applicable to the Company; (ii) violate any provision of, or result in the breach or the acceleration of, or entitle any other Person to accelerate (whether after the giving of notice or lapse of time or both), any material mortgage, indenture, agreement, instrument or contract to which the Company is a party or by which it is bound; or (iii) result in the creation or imposition of any Lien upon any property, asset or revenue of the Company (other than any Lien arising under the Transaction Documents) or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations, or any of its assets or properties.

 

(e)   Approvals . No consent, approval, order or authorization of, or registration, declaration or filing with, any governmental authority or other Person (including, without limitation, the shareholders of any Person) is required in connection with the execution and delivery of the Transaction Documents executed by the Company and the performance and consummation of the transactions contemplated thereby.

 

(f)   No Violation or Default . The Company is not in violation of or in default with respect to (i) its Certificate of Incorporation or Bylaws or other organizational documents or any material judgment, order, writ, decree, statute, rule or regulation applicable to such Person; or (ii) any material mortgage, indenture, agreement, instrument or contract to which such Person is a party or by which it is bound (nor is there any waiver in effect which, if not in effect, would result in such a violation or default).

 

(g)   Litigation . No actions (including, without limitation, derivative actions), suits, proceedings or investigations are pending or, to the knowledge of the Company, threatened against the Company at law or in equity in any court or before any other governmental authority which if adversely determined (i) would (alone or in the aggregate) result in a material liability or have a Material Adverse Effect or (ii) seeks to enjoin, either directly or indirectly, the execution, delivery or performance by the Company of the Transaction Documents or the transactions contemplated thereby.

 

 

 

 

 

(h)   Title . The Company owns and has good and marketable title in fee simple absolute to, or a valid leasehold interest in, all its real properties and good title to its other respective assets and properties, subject to no Lien, except for Permitted Liens (each as defined in the Security Agreement).

 

(i)   Accuracy of Information Furnished . None of the Transaction Documents and none of the other certificates delivered by the Company to the Investors pursuant to the Transaction Documents contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

(j)   Valid Issuance of Notes and Warrants; Reservation and Status of Shares . The Notes and Warrants, any shares of the applicable series of Preferred Stock issued upon conversion of the Notes and Warrants and any shares of Common Stock issued upon conversion of such Preferred Stock, when issued in compliance with the provisions of this Agreement, will be validly issued and will be free of any liens or encumbrances; provided, however, that such Preferred Stock or Common Stock may be subject to restrictions on transfer under state or federal securities laws and as may be required by future changes in such laws.  The Company will cause all necessary actions to be taken to (i) amend the Company’s Restated Certificate, as defined below, prior to the date any of the conversion rights set forth in the Notes becomes exercisable, or prior to the exercise of any of the Warrants, to authorize sufficient shares of the applicable series of Preferred Stock (the “ Underlying Securities ”) to permit the exercise in full of all rights arising under the Notes and Warrants, and to authorize sufficient shares of Common Stock for issuance upon the conversion of the Underlying Securities (the “ Conversion Shares ”), and (ii) immediately following such amendment, reserve sufficient shares of the Underlying Securities and Conversion Shares to permit the exercise in full of all rights arising under the Notes and the Warrants, and the conversion of all shares of Underlying Securities issued upon conversion of the Notes and Warrants.  Upon the issuance of Underlying Securities and Conversion Shares, such shares will be duly and validly issued, fully paid for and non-assessable, will be free of restrictions on transfer other than restrictions on transfer under applicable state and federal securities laws and restrictions on transfer under any agreement to which an Investor becomes a party in connection with the purchase of the Underlying Securities or Conversion Shares, and assuming the accuracy of the representations and warranties of the Investors, will be issued in compliance with all applicable federal and state securities laws.

 

3.   Representations and Warranties of Investors . Each Investor, for that Investor alone, represents and warrants to the Company upon the acquisition of the Note and the Warrant as follows:

 

(a)   Binding Obligation . Such Investor has full legal capacity, power and authority to execute and deliver this Agreement and to perform its obligations hereunder.  This Agreement is a valid and binding obligation of the Investor, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

 

 

 

 

 

(b)   Securities Law Compliance . Such Investor has been advised that the Notes, the Warrants and the securities issuable upon conversion of the Notes or the Warrants (collectively the “ Securities ”) have not been registered under the Securities Act, or any state securities laws and, therefore, cannot be resold unless they are registered under the Securities Act and applicable state securities laws or unless an exemption from such registration requirements is available.  Such Investor is aware that the Company is under no obligation to effect any such registration with respect to the Securities or to file for or comply with any exemption from registration.  Such Investor has not been formed solely for the purpose of making this investment and is purchasing the Securities to be acquired by such Investor hereunder for its own account for investment, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof.  Such Investor has such knowledge and experience in financial and business matters that such Investor is capable of evaluating the merits and risks of such investment, is able to incur a complete loss of such investment and is able to bear the economic risk of such investment for an indefinite period of time.  Such Investor is an accredited investor as such term is defined in Rule 501 of Regulation D under the Securities Act.

 

(c)   Access to Information . Such Investor acknowledges that the Company has offered such Investor access to the corporate records and accounts of the Company and to all information in its possession relating to the Company, has made its officers and representatives available for interview by such Investor, and has furnished such Investor with all documents and other information required for such Investor to make an informed decision with respect to the purchase of the Securities.

 

4.   Conditions to Closing of the Investors . Each Investor’s obligations the Closing are subject to the fulfillment, on or prior to the Closing Date, of all of the following conditions, any of which may be waived in whole or in part by such Investor:

 

(a)   Representations and Warranties . The representations and warranties made by the Company in Section 2 hereof shall have been true and correct when made, and shall be true and correct on the applicable Closing Date.

 

(b)   Performance . The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Initial Closing.

 

(c)   Governmental Approvals and Filings . Except for any notices required or permitted to be filed after the applicable Closing Date with certain federal and state securities commissions, the Company shall have obtained all governmental approvals required in connection with the lawful sale and issuance of the Notes.

 

(d)   Legal Requirements . At the applicable Closing, the sale and issuance by the Company, and the purchase by the Investors, of the Notes and Warrants shall be legally permitted by all laws and regulations to which the Investors or the Company are subject.

 

 

 

 

 

(e)   Proceedings and Documents . All corporate and other proceedings in connection with the transactions contemplated at the applicable Closing and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Investors.

 

(f)   Transaction Documents .  The Company shall have duly executed and delivered to the Investors the following documents:

 

(i)   This Agreement;

 

(ii)   Each Note and Warrant issued hereunder;

 

(iii)   The Security Agreement in the form of Exhibit C hereto; and

 

(iv)   All UCC-1 financing statements and other documents and instruments which the Investor may reasonably request to perfect its security interest in the collateral described in the Security Agreement.

 

(g)   Corporate Documents . The Company shall have delivered to the Investors each of the following:

 

(i)   The Amended and Restated Certificate of Incorporation of the Company (the “ Restated Certificate ”), certified as of a recent date prior to the Closing Date by the Secretary of State of Delaware.

 

(ii)   A certificate executed by the Chief Executive Officer, President or Chief Operating Officer of the Company on behalf of the Company, dated as of the applicable Closing Date, certifying the satisfaction of the conditions to closing listed in Section 4(a) and 4(b).

 

(iii)   A certificate of the Secretary of the Company, dated as of the applicable Closing Date, certifying (a) that the Restated Certificate of the Company, delivered to Investors pursuant to Section 4(f)(i) hereof, is in full force and effect and has not been amended, supplemented, revoked or repealed since the date of such certification; (b) that attached thereto is a true and correct copy of the Bylaws of the Company as in effect on the applicable Closing Date; (c) that attached thereto are true and correct copies of resolutions duly adopted by the Board of Directors of the Company and continuing in effect, which authorize the execution, delivery and performance by the Company of this Agreement, the Notes, the Warrants, the Security Agreement and the consummation of the transactions contemplated hereby and thereby; and (d) that there are no proceedings for the dissolution or liquidation of the Company (commenced or threatened).

 

(h)   Material Adverse Effect. No Material Adverse Effect shall have occurred.

 

5.   Conditions to Obligations of the Company . The Company’s obligation to issue and sell the Notes and Warrants at the applicable Closing is subject to the fulfillment, on or prior to the applicable Closing Date, of the following conditions, any of which may be waived in whole or in part by the Company:

 

 

 

 

(a)   Representations and Warranties . The representations and warranties made by the Investors in Section 3 hereof shall be true and correct when made, and shall be true and correct on the applicable Closing Date.

 

(b)   Governmental Approvals and Filings . Except for any notices required or permitted to be filed after the applicable Closing Date with certain federal and state securities commissions, the Company shall have obtained all governmental approvals required in connection with the lawful sale and issuance of the Notes and Warrants.

 

(c)   Legal Requirements .  At the applicable Closing, the sale and issuance by the Company, and the purchase by the Investors, of the Notes and Warrants shall be legally permitted by all laws and regulations to which the Investors or the Company are subject.

 

(d)   Purchase Price .  Each Investor shall have delivered to the Company the Purchase Price in respect of the Note and Warrant being purchased by such Investor referenced in Section 1 hereof.

 

6.   Miscellaneous .

 

(a)   Waivers and Amendments . Any provision of this Agreement may be amended, waived or modified only upon the written consent of the Company and a Majority in Interest.  Any such amendment, waiver, discharge or termination effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under the Transaction Documents at the time outstanding (including all Securities herein defined) and each future holder of all such Securities.  Each Investor acknowledges that by the operation of Section 6(a), a Majority in Interest will have the right and power to diminish or eliminate all rights of such Investor under this Agreement and each Note and Warrant issued to such Investor.

 

(b)   Governing Law . This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the laws of the State of Utah, without regard to the conflicts of law provisions of the State of Utah or of any other state.

 

(c)   Survival. The representations, warranties, covenants and agreements made herein shall survive the execution and delivery of this Agreement.

 

(d)   Successors and Assigns . Subject to the restrictions on transfer described in Sections 6(e) and 6(f) below, the rights and obligations of the Company and the Investors shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.

 

(e)   Registration, Transfer and Replacement of the Notes and Warrants . The Notes and Warrants issuable under this Agreement shall be registered on the books and records of the Company.  The Company will keep, at its principal executive office, books for the registration and registration of transfer of the Notes and Warrants.  Prior to presentation of any Note or Warrant for registration of transfer, the Company shall treat the Person in whose name such Note or Warrant is registered as the owner and holder of such Note or Warrant for all purposes whatsoever, whether or not such Note or Warrant shall be overdue, and the Company shall not be affected by notice to the contrary.  Subject to any restrictions on or conditions to transfer set forth in any Note or Warrant, the holder of any Note or Warrant, at its option, may in person or by duly authorized attorney surrender the same for exchange at the Company’s chief executive office, and promptly thereafter and at the Company’s expense, except as provided below, receive in exchange therefor one or more new Note(s) or Warrant(s), each in the principal (or, in the case of a Warrant, for the number of shares) requested by such holder, dated the date to which interest shall have been paid on the Note so surrendered, or if no interest shall have yet been so paid, dated the date of the Note so surrendered, or in the case of a Warrant, the original issue date of the Warrant so surrendered and such Note or Warrant shall be registered in the name of such Person or Persons as shall have been designated in writing by such holder or its attorney for the same principal amount as the then unpaid principal amount of the Note so surrendered, or in the case of a Warrant, for the number of shares issuable upon exercise of the Warrant so surrendered.  Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note or Warrant and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it; or (b) in the case of mutilation, upon surrender thereof, the Company, at its expense, will execute and deliver in lieu thereof a new Note or Warrant executed in the same manner as the Note or Warrant being replaced, in the same principal amount as the unpaid principal amount, or in the case of a Warrant for the same number of shares, of such Note or Warrant and in the case of a Note, dated the date to which interest shall have been paid on such Note, or, if no interest shall have yet been so paid, dated the date of such Note, or in the case of a Warrant, the original issue date of such Warrant.

 

 

 

 

(f)   Assignment by the Company . The rights, interests or obligations hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of a Majority in Interest.

 

(g)   Entire Agreement . This Agreement together with the other Transaction Documents constitute and contain the entire agreement among the Company and Investors and supersede any and all prior agreements, negotiations, correspondence, understandings and communications among the parties, whether written or oral, respecting the subject matter hereof.

 

(h)   Notices . All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and faxed, mailed or delivered to each party as follows:  (i) if to a Investor, at such Investor’s address or facsimile number set forth on Schedule I hereto, or (ii) if to the Company, at 3855 South 500 West, Suite J, Salt Lake City, UT 84115, telephone: (801) 918-4343, facsimile: (888) 291-8345, or at such other address or facsimile number as the Company shall have furnished to the Investors in writing.  All such notices and communications shall be effective (a) when sent by Federal Express or other overnight service of recognized standing, on the business day following the deposit with such service; (b) when mailed, by registered or certified mail, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (c) when delivered by hand, upon delivery; and (d) when faxed or sent by electronic mail, upon confirmation of receipt.

 

(i)   Separability of Agreements; Severability of this Agreement . The Company’s agreement with each of the Investors is a separate agreement and the sale of the Notes and Warrants to each of the Investors is a separate sale.  Unless otherwise expressly provided herein, the rights of each Investor hereunder are several rights, not rights jointly held with any of the other Investors.  Any invalidity, illegality or limitation on the enforceability of the Agreement or any part thereof, by any Investor whether arising by reason of the law of the respective Investor’s domicile or otherwise, shall in no way affect or impair the validity, legality or enforceability of this Agreement with respect to other Investors.  If any provision of this Agreement shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

(j)   Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall be deemed to constitute one instrument.  Facsimile copies of signed signature pages will be deemed binding originals.

 

[Signature Page Follows]

 

 

 

 

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date and year first written above.

 

 

COMPANY:

 

HZO, INC.

a Delaware corporation

 

By:           

Robert G. Pedersen II, President

 

INVESTORS:

ZAGG, INC.

a Nevada corporation

By:                                                                

Name:                                                                           

Title:                                                                

 

 

SCHEDULE I

 

SCHEDULE OF INVESTORS

 

Noteholder Name	Note Amount
ZAGG, Inc.   3855 South 500 West, Suite B Salt Lake City, UT 84115 Telephone: (801) 263-0699	$1,150,000*
TOTALS:	$1,150,000

*Includes $1,000,000 paid at the Initial Closing and $150,000 previously advanced by ZAGG, Inc. to the predecessor entity of the Company.

 

EXHIBIT A

 

FORM OF NOTE

 

 

 

EXHIBIT B

FORM OF WARRANT

 

 

 

 

EXHIBIT C

FORM OF SECURITY AGREEMENT

 

 

“INVESTOR”

 

­vSPRING III, L.P.

a Delaware limited partnership

 

By:           vSpring Management III, L.L.C.,

Its:           General Partner

 

By:                                                                    

Name:           Ed Ekstrom

Title:           Managing Member

EXHIBIT A

 

SCHEDULE OF INVESTORS

 

Initial Closing

Investor		Number of Series A Shares		Purchase Price		Payment in Cash		Cancellation of Indebtedness		Contribution of Property
N/A		N/A		N/A		N/A		N/A		N/A
TOTAL:		0		$0		$0		$0		$0

Subsequent Closing

Investor		Number of Series A Shares		Purchase Price		Payment in Cash		Cancellation of Indebtedness		Contribution of Property
[Other Investors] [Address]
TOTAL:

 

ZAGG Deferred Closing

Investor		Number of Series A Shares		Purchase Price		Payment in Cash		Cancellation of Indebtedness		Contribution of Property
Northeast Maritime Institute, Inc. 32 Washington St. Fairhaven, MA  02719 Attn:  President Tel: 800-767-4025 Fax: 508-992-1236		9,469,696		$4,499,999.54		$0		$0		$4,499,999.54 *
ZAGG, Inc. 3855 So. 500 W. Suite B Salt Lake City, UT 84115-4279 Attn:  President Tel: 801-263-0699 Fax: [_________]		6,628,787		$3,149,999.59		$[______]		$[_____]		$0
[Other Investors] [Address]
TOTAL:		[16,098,483]		[$7,649,999.13]		$[______]		$[______]		$4,499,999.54

 

 

 

HZO, INC.

 

INVESTOR RIGHTS AGREEMENT

 

 

This Investor Rights Agreement (this “ Agreement ”) is made as of September 25, 2009, by and among hZo, Inc., a Delaware corporation (the “ Company ”), and the persons and entities listed on Exhibit A hereto (each, an “ Investor ” and collectively, the “ Investors ”).  Unless otherwise defined herein, capitalized terms used in this Agreement have the meanings ascribed to them in Section 1 .

 

RECITALS

 

WHEREAS, the Investors are parties to the Series A Preferred Stock Purchase Agreement of even date herewith, among the Company and the Investors listed on the Schedule of Investors thereto (the “ Purchase Agreement ”), and it is a condition to the closing of the sale of the Series A Preferred Stock to the Investors listed on such Schedule of Investors that the Investors and the Company execute and deliver this Agreement;

 

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, and other consideration, the receipt of and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

 

AGREEMENT

 

Section 1

 

Definitions

 

1.1   Certain Definitions

 

.  As used in this Agreement, the following terms have the meanings set forth below:

 

(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), 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 or such surviving entity outstanding immediately after such transaction or series of transactions; (ii) a sale, lease or other conveyance of all or substantially all of the assets of the Company; or (iii) any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary.

 

 

 

 

(b)   “ Commission ” means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

 

(c)   “ Common Stock ” means the Common Stock of the Company.

 

(d)   “ Conversion Stock ” means shares of Common Stock issued upon conversion of the Preferred Stock.

 

(e)   “ Exchange Act ” means the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.

 

(f)    “ Holder ” means any Investor who holds Registrable Securities and any holder of Registrable Securities to whom the registration rights conferred by this Agreement have been duly and validly transferred in accordance with Section 2.12 of this Agreement.

 

(g)   “ Indemnified Party ” has the meaning set forth in Section 2.6(c) hereto.

 

(h)   “ Indemnifying Party ” has the meaning set forth in Section 2.6(c) hereto.

 

(i)   “ Initial Public Offering ” means the closing of the Company’s first firm commitment underwritten public offering pursuant to an effective registration statement filed under the Securities Act covering the offer and sale of the Company’s Common Stock.

 

(j)   “ Initiating Holders ” means any Holder or Holders who in the aggregate hold not less than twenty percent (20%) of the outstanding Registrable Securities.

 

(k)   “ Investors ” means the persons and entities listed on Exhibit A hereto.

 

(l)   “ Major Investors ” has the meaning set forth in Section 3.1 hereof, and shall include any general partners and affiliates of a Major Investor (including in the case of a venture capital fund partners and funds affiliated with such fund).

 

(m)   “ New Securities ” has the meaning set forth in Section 4.1(a) hereto.

 

(n)   “ Other Selling Stockholders ” means persons other than Holders who, by virtue of agreements with the Company, are entitled to include their Other Shares in certain registrations hereunder.

 

(o)   “ Other Shares ” means shares of Common Stock, other than Registrable Securities (as defined below), with respect to which registration rights have been granted or may be granted in the future (subject to the consents and approvals required by this Agreement).

 

(p)   “ Preferred Stock ” means the Company’s Series A Preferred Stock.

 

(q)   “ Purchase Agreement ” has the meaning set forth in the Recitals hereto.

 

 

 

(r)   “ Qualified Public Offering ” means a firm commitment underwritten public offering pursuant to an effective registration statement filed under the Securities Act, covering the offer and sale of the Company’s Common Stock with aggregate offering proceeds to the Company in excess of $25,000,000 (before deduction of underwriters’ commissions and expenses).

 

(s)   “ Registrable Securities ” means (i) shares of Common Stock issued or issuable pursuant to the conversion of the Preferred Stock, (ii) shares of Common Stock held by Investors who are parties to the Purchase Agreement, and (iii) any Common Stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares of Common Stock or Preferred Stock referenced in (i) or (ii) above; provided, however , that Registrable Securities shall not include any shares of Common Stock described in clause (i), (ii) or (iii) above which have previously been registered or which have been sold to the public either pursuant to a registration statement or Rule 144, or which have been sold in a private transaction in which the transferor’s rights under this Agreement are not validly assigned in accordance with this Agreement.

 

(t)   The terms “ register ,” “ registered ” and “ registration ” shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement.

 

(u)   “ Registration Expenses ” means all expenses incurred in effecting any registration pursuant to this Agreement, including, without limitation, all registration, qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company and one special counsel for the Holders (not to exceed $50,000 per registration), blue sky fees and expenses, and expenses of any regular or special audits incident to or required by any such registration, but shall not include Selling Expenses, fees and disbursements of other counsel for the Holders and the compensation of regular employees of the Company, which shall be paid in any event by the Company.

 

(v)   “ Restricted Securities ” means any Registrable Securities required to bear the first legend set forth in Section 2.8(c) hereof.

 

(w)   “ Rule 144 ” means Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.

 

(x)   “ Rule 145 ” means Rule 145 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.

 

(y)   “ Rule 415 ” means Rule 415 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.

 

 

 

(z)   “ Securities Act ” means the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.

 

(aa)   “ Selling Expenses ” means all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities and fees and disbursements of counsel for any Holder (other than the fees and disbursements of one special counsel to the Holders included in Registration Expenses).

 

(bb)   “ Withdrawn Registration ” means a forfeited demand registration under Section 2.1 in accordance with the terms and conditions of Section 2.4 .

 

Section 2                      

 

Registration Right s

 

 

2.1   Requested Registration

 

.

 

(a)   Request for Registration .  Subject to the conditions set forth in this Section 2.1 , if the Company shall receive from Initiating Holders a written request signed by such Initiating Holders that the Company effect any registration with respect to all or a part of the Registrable Securities (such request shall state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such shares by such Initiating Holders), the Company will:

 

(i)   promptly give written notice of the proposed registration to all other Holders; and

 

(ii)   as soon as practicable, file and use its commercially reasonable efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) and to permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after such written notice from the Company is mailed or delivered.

 

(b)   Limitations on Requested Registration.   The Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section 2.1 :

 

(i)   Prior to the earlier of (A) the five (5) year anniversary of the date of this Agreement or (B) one hundred eighty (180) days following the effective date of the Initial Public Offering;

 

(ii)   If the Initiating Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration statement, propose to sell Registrable Securities and such other securities (if any) the aggregate gross proceeds to the Company of which (without deduction for underwriter’s discounts and expenses related to the issuance) are less than $10,000,000;

 

 

 

 

(iii)   In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

 

(iv)   After the Company has initiated two such registrations pursuant to this Section 2.1 (counting for these purposes only (x) registrations which have been declared or ordered effective and pursuant to which securities have been sold, and (y) Withdrawn Registrations);

 

(v)   During the period starting with the date sixty (60) days prior to the Company’s good faith estimate (as provided in a certificate of such effect executed by an authorized officer of the Company for the benefit of Holders) of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a Company-initiated registration; provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or

 

(vi)   If the Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 2.3 hereof.

 

(c)   Deferral .  If (i) in the good faith judgment of the Board of Directors of the Company, the filing of a registration statement covering the Registrable Securities would be detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is in the best interests of the Company to defer the filing of such registration statement at such time, and (ii) the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be detrimental to the Company for such registration statement to be filed in the near future and that it is, therefore, in the best interests of the Company to defer the filing of such registration statement, then (in addition to the limitations set forth in Section 2.1(b)(v) above) the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders, and, provided further , that the Company shall not defer its obligation in this manner more than once in any twelve-month period.

 

(d)   Other Shares .  The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Section 2.1(e) , include Other Shares, and may include securities of the Company being sold for the account of the Company.

 

(e)   Underwriting .  If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.1 and the Company shall include such information in the written notice given pursuant to Section 2.1(a)(i) .  In such event, the right of any Holder to include all or any portion of its Registrable Securities in such registration pursuant to this Section 2.1 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities to the extent provided herein.  If the Company shall request inclusion in any registration pursuant to Section 2.1 of securities being sold for its own account, or if other persons shall request inclusion in any registration pursuant to Section 2.1 , the Initiating Holders shall, on behalf of all Holders, offer to include such securities in the underwriting and such offer shall be conditioned upon the participation of the Company or such other persons in such underwriting and the inclusion of the Company’s and such person’s other securities of the Company in the underwriting and their acceptance of the further applicable provisions of this Section 2 (including Section 2.10) .  The Company shall (together with all Holders and other persons proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders, which underwriters are reasonably acceptable to the Company.

 

 

 

Notwithstanding any other provision of this Section 2.1 , if the underwriters advise the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, the number of Registrable Securities, securities of the Company and Other Shares that may be so included shall be allocated as follows: (i) first, among all Holders requesting to include Registrable Securities in such registration statement based on the pro rata percentage of Registrable Securities held by such Holders relative to all Holders requesting to include Registrable Securities in such registration statement, assuming conversion; (ii) second, to the Other Selling Stockholders; and (iii) third, to the Company, which the Company may allocate, at its discretion, for its own account, or for the account of other holders or employees of the Company. No securities of the Company or Other Shares shall be included in such registration if any Registrable Securities that are requested to be included in such registration are not included.

 

If a person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall be excluded therefrom by written notice from the Company, the underwriter or the Initiating Holders.  The securities (including Registrable Securities) so excluded shall also be withdrawn from such registration.  If shares are so withdrawn from the registration and if the number of shares to be included in such registration was previously reduced as a result of marketing factors pursuant to this Section 2.1(e) , then the Company shall then offer to all Holders and Other Selling Stockholders who have retained rights to include securities in the registration the right to include additional Registrable Securities or Other Shares in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among such Holders and other Selling Stockholders requesting additional inclusion, as set forth above.

 

2.2   Company Registration

 

 

(a)   Company Registration . If the Company shall determine to register any of its securities either for its own account or the account of a security holder or holders, other than a registration pursuant to Section 2.1 or 2.3 , a registration relating solely to employee benefit plans, a registration relating to the offer and sale of debt securities, a registration relating to a corporate reorganization or other Rule 145 transaction, a registration statement relating to an offering on a delayed basis pursuant to Rule 415, or a registration on any registration form that does not permit secondary sales, and provided that a registration statement covering the sale of Registrable Securities is not then effective and available for sales thereof by the Holders, the Company will:

 

 

 

(i)   promptly give written notice of the proposed registration to all Holders; and

 

(ii)   use its commercially reasonable efforts to include in such registration (and any related qualification under blue sky laws or other compliance), except as set forth in Section 2.2(b) below, and in any underwriting involved therein, all of such Registrable Securities as are specified in a written request or requests made by any Holder or Holders received by the Company within twenty (20) days after such written notice from the Company is mailed or delivered.  Such written request may specify all or a part of a Holder’s Registrable Securities.

 

(b)   Underwriting .  If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 2.2(a)(i) .  In such event, the right of any Holder to registration pursuant to this Section 2.2 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein.  All Holders proposing to distribute their securities through such underwriting shall (together with the Company and any Other Selling Stockholders) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company.

 

Notwithstanding any other provision of this Section 2.2 , if the underwriters advise the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the underwriters may (subject to the limitations set forth below) limit the number of Registrable Securities to be included in the registration and underwriting (but not to less than 30% of the Registrable Securities that the requesting Holders propose to distribute through such underwriting unless such underwriting is in connection with the Initial Public Offering, in which case up to 100% of the Registrable Securities may be so excluded, so long as, in such case, all securities to be offered in such Initial Public Offering are for the account of the Company and not for the account of a security holder or holders).  The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated, as follows: (i) first, to the Company for securities being sold for its own account, (ii) second, to the Holders requesting to include Registrable Securities issued or issuable upon conversion of shares of Series A Preferred Stock purchased pursuant to the Purchase Agreement in such registration statement up to the full amount of such Registrable Securities held by such Holders; (iii) third, to the Holders requesting to include Registrable Securities in such registration statement whose Registrable securities have not been included in such registration pursuant to subsection (ii) of this paragraph based on the pro rata percentage of such Registrable Securities held by such Holders relative to all such Holders requesting to include Registrable Securities in such registration statement, assuming conversion; and (iv) fourth, to Other Selling Stockholders requesting to include Other Shares in such registration statement based on the pro rata percentage of Other Shares held by such Other Selling Stockholders, assuming conversion.

 

 

 

If a person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall also be excluded therefrom by written notice from the Company or the underwriter.  The Registrable Securities or other securities so excluded shall also be withdrawn from such registration.  If shares are so withdrawn from the registration and if the number of shares of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors pursuant to Section 2.2(b) , the Company shall then offer to all persons who have retained the right to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among the persons requesting additional inclusion, in the manner set forth above.

 

(c)   Right to Terminate Registration .  The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration.

 

2.3   Registration on Form S-3

 

 

(a)   Request for Form S-3 Registration .  After the Company has qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this Section 2 and subject to the conditions set forth in this Section 2.3 , if the Company shall receive from a Holder or Holders of at least 20% of the Registrable Securities a written request that the Company effect any registration on Form S-3 or any similar short form registration statement with respect to all or part of the Registrable Securities (such request shall state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such shares by such Holder or Holders), the Company will take all such action with respect to such Registrable Securities as required by Section 2.1(a)(i) and (ii) .

 

(b)   Limitations on Form S-3 Registration .  The Company shall not be obligated to effect, or take any action to effect, any such registration pursuant to this Section 2.3 :

 

(i)   In the circumstances described in either Sections 2.1(b)(i) , 2.1(b)(iii) or 2.1(b)(v) ; or

 

(ii)   If the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) on Form S-3 at an aggregate price to the public of less than $1,000,000; or

 

(iii)   If, in a given twelve-month period, the Company has effected two (2) such registrations in such period.

 

 

 

(c)   Deferral .  The provisions of Section 2.1(c) shall apply to any registration pursuant to this Section 2.3 .

 

(d)   Underwriting .  If the Holders of Registrable Securities requesting registration under this Section 2.3 intend to distribute the Registrable Securities covered by their request by means of an underwriting, the provisions of Sections 2.1(e) shall apply to such registration.  Notwithstanding anything contained herein to the contrary, registrations effected pursuant to this Section 2.3 shall not be counted as requests for registration or registrations effected pursuant to Section 2.1 .

 

2.4   Expenses of Registration

 

.  All Registration Expenses incurred in connection with registrations pursuant to Sections 2.1 , 2.2 and 2.3 hereof shall be borne by the Company; provided, however , that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Sections 2.1 and 2.3 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered or because a sufficient number of Holders shall have withdrawn so that the minimum offering conditions set forth in Sections 2.1 and 2.3 are no longer satisfied (in which case all participating Holders shall bear such expenses pro rata among each other based on the number of Registrable Securities requested to be so registered), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to a demand registration pursuant to Section 2.1 ; provided, however , in the event that a withdrawal by the Holders is based upon material adverse information relating to the Company that is different from the information known or publicly available to the Holders requesting registration at the time of their request for registration under Section 2.1 , such registration shall not be treated as a counted registration for purposes of Section 2.1 hereof or for purposes of determining previously registered shares in the definition of Registrable Securities, even though the Holders do not bear the Registration Expenses for such registration.  All Selling Expenses relating to securities registered on behalf of the Holders pursuant to Sections 2.1, 2.2 or 2.3 shall be borne by the holders of securities included in such registration pro rata among each other on the basis of the number of Registrable Securities so registered.

 

2.5   Registration Procedures

 

.  In the case of each registration effected by the Company pursuant to Section 2 , the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof.  At its expense, the Company will use its commercially reasonable efforts to:

 

(a)   Keep such registration effective for a period ending on the earlier of the date which is sixty (60) days from the effective date of the registration statement or such time as the Holder or Holders have completed the distribution described in the registration statement relating thereto;

 

(b)   Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in subsection (a) above;

 

 

 

(c)   Furnish such number of prospectuses, including any preliminary prospectuses, and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request;

 

(d)   Register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided , that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

 

(e)   Notify each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in light of the circumstances then existing, and following such notification promptly prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in light of the circumstances then existing;

 

(f)   Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such registration statement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;

 

(g)   Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; and

 

(h)   In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 2.1, Section 2.2 or Section 2.3 hereof, enter into an underwriting agreement in form reasonably necessary to effect the offer and sale of the Registrable Securities, provided such underwriting agreement contains reasonable and customary provisions, and provided further , that each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.

 

2.6   Indemnification

 

 

(a)   To the extent permitted by law, the Company will indemnify and hold harmless each Holder, each of its current, former and future: (i) officers, (ii) directors, (iii) partners, (iv) employees, (v) members and (vi) agents; and each person controlling, controlled by or under common control with such Holder, and each of their respective current, former and future:  (i) officers, (ii) directors, (iii) partners, (iv) employees, (v) members and (vi) agents, within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification, or compliance has been effected pursuant to this Section 2 , and each underwriter, if any, and each person who controls within the meaning of Section 15 of the Securities Act any underwriter  (each a “ Holder Indemnified Party ”), against all expenses, claims, losses, damages, and liabilities (or actions, proceedings, or settlements in respect thereof) arising out of or based on: (i) any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any prospectus, offering circular, or other document (including any related registration statement, notification, or the like) incident to any such registration, qualification, or compliance, (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation (or alleged violation) by the Company of the Securities Act, any state securities laws or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any offering covered by such registration, qualification, or compliance, and the Company will reimburse each such Holder Indemnified Party, for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability, or action; provided that the Company will not be liable to a Holder Indemnified Party in any such case to the extent that any such claim, loss, damage, liability, or action arises out of or is based on any untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by such Holder Indemnified Party and stated to be specifically for use therein; and provided, further that, the indemnity agreement contained in this Section 2.6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld).

 

 

 

(b)   To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification, or compliance is being effected, indemnify and hold harmless the Company, each of its directors, officers, partners, employees and agents and each underwriter, if any, of the Company’s securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, each other such Holder, and each of their current, former and future officers, directors, partners, employees, members and agents and each person controlling, controlled by or under common control with such Holder (each a “ Company Indemnified Party ”, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on: (i) any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any such registration statement, prospectus, offering circular, or other document incident to any such registration, qualification or compliance, or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such Company Indemnified Party for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein; provided, however , that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages, or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld); and provided that in no event shall any indemnity under this Section 2.6(b ), when aggregated with any contributions under Section 2.6(d), exceed the net proceeds from the offering received by such Holder, except in the case of fraud by such Holder.

 

 

(c)   Each party entitled to indemnification under this Section 2.6 (the “ Indemnified   Party ”) shall give notice to the party required to provide indemnification (the “ Indemnifying   Party ”) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party’s expense; and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.6 , to the extent such failure is not materially prejudicial.  No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation.  Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom.

 

(d)   If the indemnification provided for in this Section 2.6 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations; provided, that, in no event shall any contribution by a Holder under this Section 2.6(d) , when aggregated with any indemnity under Section 2.6(b) , exceed the net proceeds from the offering received by such Holder, except in the case of fraud by such Holder.  The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

 

(e)   Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with an underwritten public offering, in connection with which Holders have exercised their

 

 

 

registration rights hereunder and included Registrable Securities in the applicable registration statement, are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control and supersede in their entirety the provisions contained herein.

 

2.7   Obligations of Each Holder

 

.  In connection with any registration of Registrable Securities pursuant to this Agreement, each Holder shall:

 

(a)   timely furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification, or compliance referred to in this Section 2 ;

 

(b)   upon receipt of notice from the Company of the happening of any event of the kind described in Section 2.5(e) , immediately discontinue any sale or other disposition of Registrable Securities until the filing of an amendment or supplement as described in Section 2.5(e) and the receipt of the copies of such amended or supplemented prospectus, and, if so directed, such Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies in such Holder’s possession, of the prospectus covering such Registrable Securities that is current at the time of such notice;

 

(c)   to the extent required by applicable law, deliver a prospectus to the purchaser of such Registrable Securities;

 

(d)   notify the Company when it has sold all of the Registrable Securities held by it; and

 

(e)   notify the Company at any time when any information supplied by such Holder in writing for inclusion in a registration statement or related prospectus includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in light of the circumstances then existing; immediately discontinue any sale or other disposition of Registrable Securities until the filing of an amendment or supplement to such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in light of the circumstances then existing; and use commercially reasonable efforts to assist the Company as may be appropriate to make such amendment or supplement effective for such purpose.

 

2.8   Restrictions on Transfer

 

 

(a)   Each Investor agrees to comply in all respects with the provisions of this Section 2.8 .  Each Investor agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of any securities of the Company owned by such Investor, or any beneficial interest therein, unless and until (x) the transferee thereof has agreed in writing for the benefit of the Company to take and hold such securities subject to, and to be bound by, the terms and conditions set forth in this Agreement, including, without limitation, this Section 2.8 and Section 2.10 , except for transfers permitted under Section 2.8(a)(i) , and (y):

 

 

 

(i)   There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

 

(ii)   Such Investor shall have given prior written notice to the Company of such Investor’s intention to make such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition, and, if requested by the Company, such Investor shall have furnished the Company, at its expense, with (i) an opinion of counsel, reasonably satisfactory to the Company, to the effect that such disposition will not require registration of such securities under the Securities Act or (ii) a “no action” letter from the Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the Investor shall be entitled to transfer such securities in accordance with the terms of the notice delivered by the Investor to the Company.  It is agreed that the Company will not require opinions of counsel or “no action” letters for transactions made pursuant to Rule 144 except in unusual circumstances.

 

(b)   Notwithstanding Section 2.8(a), each Investor may make any of the following permitted transfers without complying with Section 2.8(a): (i) a transfer not involving a change in beneficial ownership, or (ii) in transactions involving the distribution without consideration of securities by any Investor to (x) a parent, subsidiary or other affiliate of Investor that is a corporation, or (y) any of its partners, members or other equity owners, or former partners, former members or other equity owners, or to the estate of any of its partners, members or other equity owners or former partners, former members or other equity owners (so long as, in the case of clauses (i) and (ii), the transferee thereof has agreed in writing for the benefit of the Company to take and hold such securities subject to, and to be bound by, the terms and conditions set forth in this Agreement, including without limitation, Section 2.8 and Section 2.10 ), or (iii) transfers in compliance with Rule 144, as long as the Company is furnished with satisfactory evidence of compliance with such Rule; provided , in each case, that the Investor shall give written notice to the Company of such Investor’s intention to effect such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition.

 

(c)   Each certificate representing securities shall (unless otherwise permitted by the provisions of this Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws):

 

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

 

 

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE, INCLUDING A LOCK-UP PERIOD OF UP TO 180 DAYS IN THE EVENT OF A PUBLIC OFFERING, AS SET FORTH IN AN INVESTOR RIGHTS AGREEMENT, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.

 

The Investors consent to the Company making a notation on its records and giving instructions to any transfer agent of the securities in order to implement the restrictions on transfer established in this Section 2.8 .

 

(d)   The first legend referring to federal and state securities laws identified in Section 2.8(c) hereof stamped on a certificate evidencing the securities and the stock transfer instructions and record notations with respect to such securities shall be removed and the Company shall issue a certificate without such legend to the holder of such securities if (i) such securities are registered under the Securities Act, or (ii) such Investor provides the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a public sale or transfer of such securities may be made without registration under the Securities Act, or (iii) such holder provides the Company with reasonable assurances that such securities can be sold pursuant to Rule 144 under the Securities Act.

 

2.9   Rule 144 Reporting

 

.  With a view to making available the benefits of certain rules and regulations of the Commission that may permit the sale of the Restricted Securities to the public without registration, the Company agrees to use its commercially reasonable efforts to:

 

(a)   Make and keep public information regarding the Company available as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after ninety (90) days following the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;

 

(b)   File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; and

 

(c)   So long as a Holder owns any Restricted Securities, furnish to the Holder forthwith upon written request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration.

 

 

 

2.10   Market Stand-Off Agreement

 

.  Each Investor hereby agrees that such Investor shall not sell or otherwise transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale with respect to, any Common Stock (or other securities) of the Company held by such Investor (other than those included in the registration) during the one hundred eighty (180) day period following the effective date of the Company’s Initial Public Offering (or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto); provided, that, all officers and directors of the Company and holders of at least 1% of the Company’s voting securities are bound by and have entered into similar agreements.  Furthermore, the Company and any underwriter will not release any officer, director or greater than one percent (1%) stockholder, in whole or in part, from their market stand-off obligations unless a proportionate amount of Registrable Securities held by each Holder is also released.  The obligations described in this Section 2.10 shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future.  The Company may impose stop-transfer instructions and may stamp each such certificate with the second legend set forth in Section 2.8(c) hereof with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of such one hundred eighty (180) day (or other) period.  Each Holder agrees to execute a market standoff agreement with said underwriters in customary form consistent with the provisions of this Section 2.10 .

 

2.11   Delay of Registration

 

.  No Holder shall have any right to take any action to restrain, enjoin, or otherwise delay any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2 .

 

2.12   Transfer or Assignment of Registration Rights

 

.  The rights to cause the Company to register securities granted to a Holder by the Company under this Section 2 may be transferred or assigned by a Holder only in connection with the transfer of Registrable Securities to affiliated entities or persons of a Holder (including but not limited to: (i) a constituent partner or a former partner of a Holder that is a partnership; (ii) a parent, subsidiary or other affiliate of a Holder that is a corporation; (iii) an immediate family member living in the same household, a descendant, or a trust therefore, in the case of a Holder who is an individual; (iv) a current or former member of a Holder that is a limited liability company; or (v) any person or entity controlling, controlled by or under common control (including without limitation control by management contract or arrangement) with any other person or entity), or to a transferee or assignee of not less than five percent (5%) of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like); provided that (i) such transfer or assignment of Registrable Securities is effected in accordance with the terms of Section 2.8 hereof, the Right of First Refusal and Co-Sale Agreement dated as of even date herewith (if applicable), and applicable securities laws, (ii) the Company is given written notice prior to said transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities with respect to which such registration rights are intended to be transferred or assigned and (iii) the transferee or assignee of such rights assumes in writing the obligations of such Holder under this Agreement, including without limitation the obligations set forth in Section 2.10 .

 

 

 

2.13   Limitations on Subsequent Registration Rights

 

.  From and after the date of this Agreement, the Company shall not, without the prior written consent of a majority in interest of the Holders (determined on an as-converted basis), enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder or prospective holder any registration rights the terms of which are pari passu or senior to the registration rights granted to the Holders hereunder.

 

2.14   Termination of Registration Rights

 

.  The right of any Holder to request registration or inclusion in any registration pursuant to Section 2.1 , 2.2 or 2.3 shall terminate on the earlier of (i) such date, on or after the closing of the Company’s first registered public offering of Common Stock, on which all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may immediately be sold under Rule 144 during any ninety (90)-day period or (ii) five (5) years after the closing of the Company’s Initial Public Offering.

 

Section 3

 

Information Covenants of the Company

 

The Company hereby covenants and agrees as follows:

 

3.1   Basic Financial Information

 

.  The Company will furnish the following reports to each Holder of at least 1,000,000 shares of Preferred Stock and/or Conversion Stock (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits and the like) (hereinafter, the “ Major Investors ”):

 

(a)   as soon as practicable after the end of each fiscal year of the Company, and in any event within one hundred twenty (120) days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year, and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with U.S. generally accepted accounting principles consistently applied, audited by an accounting firm approved by the Board of Directors;

 

(b)   as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited income statement, statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter;

 

 

 

(c)   as soon as practicable, but in any event within fifteen (15) days of the end of each month, an unaudited income statement and statement of cash flows and balance sheet for and as of the end of such month; and

 

(d)   as soon as practicable, but in any event thirty (30) days prior to the end of each fiscal year, a budget for the next fiscal year, which budget shall be prepared on a monthly basis, including balance sheets and statements of cash flows for such months and, as soon as approved by the Board of Directors, any revised budget prepared by the Company.

 

3.2   Inspection

 

.  The Company shall permit each Major Investor and such Major Investor’s accountants and counsel, at such Major Investor’s expense, to visit and inspect the Company’s properties, to examine its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Major Investor.

 

3.3   Confidentiality

 

.  Anything in this Agreement to the contrary notwithstanding, no Major Investor by reason of this Agreement shall have access to any trade secrets or classified information of the Company.  The Company shall not be required to comply with any information rights of Section 3 in respect of any Major Investor whom the Board of Directors reasonably determines to be a competitor or an officer, employee or director of a competitor.  Each Major Investor covenants not to use Confidential Information (as defined below) in violation of the Exchange Act or reproduce, disclose or disseminate Confidential Information to any other person (other than its employees, partners, former partners, members, former members or agents having a need to know the contents of such information, and its attorneys), except in connection with the exercise of rights under this Agreement, unless such Major Investor is required to disclose such information by a governmental authority; provided that nothing in this Agreement shall be construed to limit or in any way prevent any Major Investor from investing in a competitor of the Company.  The obligations of Major Investor under this Section 3.3 shall survive until such time as all Confidential Information of the Company disclosed hereunder becomes publicly known and made generally available through no action or inaction of the Major Investors, but in no event more than one (1) year after the last disclosure of Confidential Information under this Agreement. “ Confidential Information ” means any nonpublic information disclosed by the Company to any Major Investor pursuant to this Agreement or pursuant to the exercise of rights hereunder other than information that (i) was publicly known and made generally available in the public domain prior to the time of disclosure by the disclosing party; (ii) becomes publicly known and made generally available after disclosure by the Company to any of the Major Investors through no action or inaction of the Major Investors; (iii) is already in the possession of any of the Major Investors at the time of disclosure by the Company as shown by such Major Investor’s files and records immediately prior to the time of disclosure; (iv) is obtained by any of the Major Investors from a third party lawfully in possession of such information and without a breach of such third party’s obligations of confidentiality; or (v) is independently developed by any of the Major Investors without use of or reference to the Company’s Confidential Information, as shown by documents and other competent evidence in the receiving party’s possession.

 

 

 

3.4   Stock Vesting

 

.  Unless otherwise approved unanimously by the Board of Directors, all stock options and other stock equivalents issued after the date of this Agreement to employees, directors, consultants and other service providers shall be subject to vesting as follows:  (a) twenty-five percent (25%) of such stock shall vest at the end of the first year following the earlier of the date of issuance or such person’s services commencement date with the Company, and (b) seventy-five percent (75%) of such stock shall vest monthly over the remaining three (3) years.

 

3.5   Directors’ Liability and Indemnification

 

.  The Company’s Certificate of Incorporation and Bylaws shall provide (a) for elimination of the liability of director to the maximum extent permitted by law and (b) for indemnification of directors for acts on behalf of the Company to the maximum extent permitted by law.

 

3.6   Director and Officer Insurance

 

.  The Company will maintain in full force and effect (and pay all premiums thereon) director and officer liability insurance in such amounts as reasonably acceptable to the Board of Directors (including each of the directors elected by the holders of Preferred Stock).

 

3.7   Termination of Covenants

 

.  The covenants set forth in Sections 3.1 and 3.2 shall terminate and be of no further force and effect upon the closing of a Qualified Public Offering or upon the consummation of a Change of Control of the Company.

 

Section 4                      

 

Other Covenants

 

4.1   Right of First Refusal to Major Investors

 

. 

 

(a)   The Company hereby grants to each Major Investor that is an “accredited investor,” as defined under Rule 501(a) under the Securities Act, the right of first refusal to purchase its pro rata share of New Securities (as defined in this Section 4.1(a) ) which the Company may, from time to time, propose to sell and issue after the date of this Agreement.  A Major Investor’s pro rata share, for purposes of this right of first refusal, is equal to the ratio of (a) the number of shares of Common Stock (assuming full conversion and exercise of all outstanding convertible securities, rights, options and warrants, directly or indirectly, into Common Stock) owned by such Major Investor immediately prior to the issuance of New Securities to (b) the total number of shares of Common Stock (assuming full conversion and exercise of all outstanding convertible securities, rights, options and warrants, directly or indirectly, into Common Stock) outstanding immediately prior to the issuance of New Securities (the “ Pro Rata Share ”).  Each Major Investor shall have a right of over-allotment such that if any Major Investor fails to exercise its right hereunder to purchase its pro rata share of New Securities, the other Major Investors may purchase the non-purchasing Major Investor’s portion on a pro rata basis.  The closing of the sale of New Securities by the Company to each Major Investor upon exercise of its rights under this Section 4 shall take place simultaneously with the closing of the sale of New Securities to third parties.  For purposes hereof, “ New Securities ” means any capital stock (including Common Stock and/or Preferred Stock) of the Company whether now authorized or not, and rights, convertible securities, options or warrants to purchase such capital stock, and securities of any type whatsoever that are, or may become, exercisable or convertible into capital stock that is deemed to be Additional Shares of Common (as such term is defined in the Company’s Amended and Restated Certificate of Incorporation) other than shares of Series A Preferred Stock issued in a Closing after the Initial Closing (each as defined in the Purchase Agreement).

 

 

 

(b)   In the event the Company proposes to undertake an issuance of New Securities, it shall give each Major Investor written notice of its intention, describing the type of New Securities and their price and the general terms upon which the Company proposes to issue the same.  Each Major Investor shall have twenty (20) days after any such notice is mailed or delivered (the “ Election   Period ”) to agree to purchase such Major Investor’s Pro Rata Share of such New Securities and to indicate whether such Holder desires to exercise its over-allotment option for the price and upon the terms specified in the notice by giving written notice to the Company, in substantially the form attached hereto as Schedule 1 , and stating therein the quantity of New Securities to be purchased.

 

(c)   In the event the Holders fail to exercise fully the right of first refusal and over-allotment rights, if any, within the Election Period, the Company shall have ninety (90) days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within ninety (90) days from the end of the Election Period) to sell that portion of the New Securities with respect to which the Major Investors’ right of first refusal option set forth in this Section 4.1 was not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Company’s notice to Major Investors delivered pursuant to Section 4.1(b) .  In the event the Company has not sold within such ninety (90) day period following the Election Period, the Company shall not thereafter issue or sell any New Securities without first again offering such securities to the Major Investors in the manner provided in this Section 4.1 .

 

(d)   The right of first refusal set forth in this Section 4.1 may not be assigned or transferred by the Major Investor, except that such right is assignable by each Major Investor (i) to any wholly owned subsidiary or parent of, or to any corporation or entity or individual that is, within the meaning of the Securities Act, controlling, controlled by or under common control with, any such Major Investor and (ii) to any other Major Investor or person or entity that following such assignment or transfer, would be a Major Investor.

 

(e)   The right of first refusal granted under this Section 4.1 shall expire immediately prior to, and shall not be applicable to the first to occur of (x) the Company’s Qualified Public Offering, or (y) a Change of Control of the Company. The right of first refusal granted under this Section 4.1 shall not apply to any public offering of the Company’s capital stock, whether or not such public offering is a Qualified Public Offering.

 

4.2          Reimbursement of Expenses for Directors

 

.  The Company shall reimburse in full each non-employee director of the Company for all of such director’s reasonable out-of-pocket expenses incurred as a result of travel to and from each meeting of the Board of Directors or any committee thereof.

 

 

Section 5

 

Miscellaneous

 

5.1   Amendment

 

.  Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Agreement and signed by the Company and the Holders holding at least two-thirds (2/3rds) of the Registrable Securities; provided, however , that Holders purchasing shares of Series A Preferred Stock in a Subsequent Closing (as defined in the Purchase Agreement) may become parties to this Agreement, by executing a counterpart of this Agreement without any amendment of this Agreement pursuant to this paragraph or any consent or approval of any other Holder. Any such amendment, waiver, discharge or termination effected in accordance with this paragraph shall be binding upon each Holder and each future holder of all such securities of Holder.  Each Holder acknowledges that by the operation of this paragraph, the holders of two-thirds (2/3rds) of the Registrable Securities will have the right and power to diminish or eliminate all rights of such Holder under this Agreement.

 

5.2   Notices

 

.  All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or otherwise delivered by hand or by messenger addressed:

 

(a)   if to any Investor or Holder, at such address or facsimile number as shown in the Company’s records, or, until any such person so furnishes an address or facsimile number to the Company, then to and at the address of the last holder of such shares for which the Company has contact information in its records; or

 

(b)   if to the Company, to 3855 South 500 West, Suite J, Salt Lake City, UT 84115, Attn: President, or to such other address as the Company shall have furnished to the Investors.

 

Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid or, if sent by facsimile, upon confirmation of facsimile transfer.

 

5.3   Governing Law

 

.  This Agreement shall be governed in all respects by the internal laws of the State of Delaware as applied to agreements entered into among Delaware residents to be performed entirely within Delaware, without regard to principles of conflicts of law.

 

5.4   Successors and Assigns

 

.  Except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

 

5.5   Entire Agreement

 

.  This Agreement and the exhibits hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof.  No party hereto shall be liable or bound to any other party in any manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein.

 

 

 

5.6   Delays or Omissions

 

.  Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement shall impair any such right, power or remedy of such non-defaulting party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring.  Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.  All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative.

 

5.7   Severability

 

.  If any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement, and such court will replace such illegal, void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision.  The balance of this Agreement shall be enforceable in accordance with its terms.

 

5.8   Counterparts

 

.  This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties that execute such counterparts, and all of which together shall constitute one instrument.

 

5.9   Telecopy Execution and Delivery

 

.  A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto and delivered by such party by facsimile or any similar electronic transmission device pursuant to which the signature of or on behalf of such party can be seen.  Such execution and delivery shall be considered valid, binding and effective for all purposes.  At the request of any party hereto, all parties hereto agree to execute and deliver an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof.

 

5.10   Aggregation of Stock

 

. All shares of Registrable Securities held or acquired by affiliated entities or persons of an Investor (including but not limited to: (i) a constituent partner or a retired partner of an Investor that is a partnership; (ii) a parent, subsidiary or other affiliate of an Investor that is a corporation; (iii) an immediate family member living in the same household, a descendant, or a trust therefore, in the case of an Investor who is an individual; or (iv) a member of an Investor that is a limited liability company) shall be aggregated together for the purpose of determining the availability of any rights under this Agreement which are triggered by the beneficial ownership of a threshold number of shares of the Company’s capital stock .

 

5.11   Further Assurances

 

.  Each party hereto agrees to execute and deliver, by the proper exercise of its corporate, limited liability company, partnership or other powers, all such other and additional instruments and documents and do all such other acts and things as may be necessary to more fully effectuate this Agreement.

 

( Signature page follows )

 

IN WITNESS WHEREOF, the parties hereto have executed this Investor Rights Agreement effective as of the day and year first above written.

 

“ COMPANY ”

 

HZO, INC.

a Delaware corporation

 

By:

Robert G. Pedersen II

President

 

 

“ INVESTORS”

NORTHEAST MARITIME INSTITUTE, INC.

By:

Name:                                                                    

Title:                                                                    

 

 “ INVESTORS”

 

ZAGG, INC.

By:

Name:                                                                    

Title:                                                                    

 

 

 

  “ INVESTORS”

[ADDITIONAL INVESTOR]

By:

Name:                                                                    

Title:                                                                    

 

EXHIBIT A

 

INVESTORS

Investor

vSpring III, L.P. 2795 E. Cottonwood Pkwy., Suite 360 Salt Lake City, Utah 84121 Attn:  Ed Ekstrom Tel: (801) 942.8999 Fax: (801) 942.1636

Northeast Maritime Institute, Inc. 32 Washington St. Fairhaven, MA  02719 Attn:  President Tel: 800-767-4025 Fax: 508-992-1236

ZAGG, Inc. 3855 So. 500 W. Suite B Salt Lake City, UT 84115-4279 Attn:  President Tel: 801-263-0699 Fax: [_________]

[Other Investors] [Address] Attn:  [__________] Tel: [_________] Fax: [_________]

 

 

Schedule 1

 

NOTICE AND WAIVER/ELECTION OF

RIGHT OF FIRST REFUSAL

 

I do hereby waive or exercise, as indicated below, my rights of first refusal under the Investors Rights Agreement dated as of September 25, 2009 (the “ Agreement ”):

 

1.   Waiver of the Election Period in Which to Exercise Right of First Offer:   (please check only one)

 

(   )

WAIVE in full, on behalf of all Holders, the Election Period provided to exercise my right of first refusal granted under the Agreement.

 

(   )

DO NOT WAIVE the notice period described above.

 

2.   Issuance and Sale of New Securities:   (please check only one)

 

(   )

WAIVE in full the right of first refusal granted under the Agreement with respect to the issuance of the New Securities.

 

(   )

ELECT TO PARTICIPATE in $__________ [PLEASE PROVIDE AMOUNT] in New Securities proposed to be issued by hZo, Inc., representing less than my pro rata portion of the aggregate of $_________ in New Securities being offered in the financing.

 

(   )

ELECT TO PARTICIPATE in $__________ in New Securities proposed to be issued by hZo, Inc., representing my full pro rata portion of the aggregate of $____________ in New Securities being offered in the financing.

 

(   )

ELECT TO PARTICIPATE in my full pro rata portion of the aggregate of $_________ in New Securities being made available in the financing and , to the extent available, the greater of (x) an additional $__________ [PLEASE PROVIDE AMOUNT] or (y) my pro rata portion of any remaining investment amount available in the event other Major Investors do not exercise their full rights of first refusal with respect to the $__________ in New Securities being offered in the financing.

 

Date: ___________, 20__                                                           ______________________________________

Signature of Stockholder or Authorized

Signatory

 

Title, if applicable

 

This is neither a commitment to purchase nor a commitment to issue the New Securities described above.  Such issuance can only be made by way of definitive documentation related to such issuance.  hZo, Inc. will supply you with such definitive documentation upon request or if you indicate that you would like to exercise your first offer rights in whole or in part.

 

 

HZO, INC.

RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 

This Right of First Refusal and Co-Sale Agreement (this “ Agreement ”) is made as of September 25, 2009 by and among hZo, Inc., a Delaware corporation (the “ Company ”) the individuals and entities listed on Exhibit A attached hereto (each, an “ Investor ,” and collectively, the “ Investors ”) and the individuals listed on Exhibit B attached hereto (each, a “ Key Holder ,” and collectively, the “ Key Holders ”).

 

RECITALS

 

WHEREAS :  The Investors are parties to the Series A Preferred Stock Purchase Agreement of event date herewith, among the Company and the Investors listed on the Schedule of Investors thereto (the “ Purchase Agreement ”) and it is a condition to the closing of the sale of the Series A Preferred Stock to the Investors that the Investors, the Key Holders and the Company execute and deliver this Agreement.

 

NOW, THEREFORE : In consideration of the mutual promises and covenants herein contained, and other consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

 

1.   Certain Definitions

 

.  For purposes of this Agreement, the following terms have the following meanings: