Orange 21 Inc., a leading designer, producer and distributor of products for action sports under the brands Spy Optic, O’Neill and Margaritaville, last week announced that its wholly owned subsidiary Orange 21 North America Inc. (O21NA) issued a $7.0 million promissory note to Orange 21 shareholder Costa Brava Partnership III, LP. The promissory note replaces the promissory note of $3 million in March 2010; $1 million promissory note in October 2010; and the $1 million promissory note in November 2010. The $7 million promissory note provides an additional $2 million in proceeds.

The promissory note is subordinated to O21NA’s loan and security agreement with BFI Business Finance as part of its debt subordination agreement on March 23, 2010, by and between Costa Brava and BFI.

The company said the $2 million proceeds will be used to prepay the current balance on its revolving line of credit with BFI; any remaining proceeds will be used for working capital purposes.

Seth Hamot, Orange 21 chairman of the board of directors, is the president and sole member of Roark, Rearden & Hamot, LLC, the sole general partner of Costa Brava.

“We are quite pleased to help our company grow. Orange 21 and its portfolio of brands have lots of opportunity in front of them, and we look forward to being a part of that growth for a long time,” Hamot stated in the press release.

The promissory note matures on December 30, 2011. At any time during the terms of the promissory note, Costa Brava may convert up to $2,250,000 into shares of Orange 21 Inc. common stock at a conversion price of $2.25 per share.

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