Orange 21 has sold for €15,000 a 90 percent stake in LEM, the Italian manufacturer of high-end injection-molded sunglasses that it had bought in 2005 from Riccardo Polinelli when the U.S. company went public. Two managers of LEM, Stefano Lodigiani and Claudio Marcassa, now have a 25 percent stake each in LEM. In an interesting new set-up, the remaining 40 percent is shared between two suppliers of component to the factory, Greencube and Nomec.

While shifting some of the production to the Far East, Orange 21, which is based in California, plans to focus on the sale and distribution of its brands - Spy Optic, O'Neill, Margaritaville and Melodies by MJB - through its 100 percent-owned subsidiaries, Orange 21 North America and Orange 21 Europe. The latter continues to be based in Varese, close to LEM's factory, operating under the management of Massimo Bonfanti.

Orange 21 is keeping a 10 percent stake in LEM and will continue to order eyewear from the Italian company. Under the deal, it will have to purchase at least €3.72 million worth of merchandise from LEM during the 2011fiscal year, or half of what it was sourcing before. Minimum orders will again be halved in 2012, when they will be reduced to €1.86 million. The contractual guaranteed minimums are conditional on Lodigiani and Marcassa continuing to work for LEM.

Lodigiani is the general manager, brought over by Orange 21 when it bought the company. Marcassa is in charge of product development and sales and has been with the company for 15 years. LEM has a staff of about 100 people, 80 of whom are line workers, but some of them may lose their jobs because of the American company's pull-out.

21 absorbed lately 65 percent of LEM's production, with a certain priority on new technologies and the work flow. The new set-up is expected to give LEM more flexibility to work with other clients. Some contacts have already been made with new clients, some of which already work with the two suppliers of components that have become LEM shareholders. Their involvement should also lead to interesting new synergies on the technological front.

The sale of LEM was evidently due in part to the ongoing financial problems of Orange 21. Its North American subsidiary announced a few weeks ago a refinancing package. It has issued a $7.0 million promissory note to Costa Brava Partnership III, one of the parent company's shareholders. This new note replaced three others for $3 million and added $2 million more, to be used for working capital.

The promissory note is subordinated to Orange 21 North America's Loan and Security Agreement with BFI Business Finance, pursuant to the terms of a Debt Subordination Agreement, dated March 23, 2010 and amended on Oct. 4, Oct. 29 and Dec. 20 by and between Costa Brava and BFI.

The maturity date of the promissory note is Dec. 31, 2012. During its term, Costa Brava may convert up to $2.25 million of the note into shares of Orange 21 common stock at a conversion price of $2.25 per share, if it so chooses. Seth Hamot, Orange 21's chairman, said in a statement that the new agreement simplifies the company's working capital requirements, allowing it to focus more on its products.