--------------------------------------------------------------------------------

Exhibit 10.6
 
INTELLECTUAL PROPERTY SECURITY AGREEMENT
 
This INTELLECTUAL PROPERTY SECURITY AGREEMENT (this “Agreement”), dated as of
March 5, 2008, is made by Blue Holdings, Inc., a Nevada corporation (the
“Company”), and all of the Subsidiaries of the Company (such Subsidiaries, the
“Guarantors”, and together with the Company, the “Grantors”), in favor of the
holders of the Company’s 8% Senior Secured Convertible Notes issued or to be
issued in the original aggregate principal amount of up to $3,000,000 (the
“Notes”) pursuant to the Purchase Agreement (as defined below) (collectively,
together with their endorsees, transferees and assigns, the “Lenders”).
 
W I T N E S S E T H:
 
WHEREAS, the Company and the Lenders are party to that certain Securities
Purchase Agreement, dated on or about on or about March 5, 2008 (“Purchase
Agreement”), pursuant to which the Company issued or is issuing the Notes, among
other things;
 
WHEREAS, pursuant to that certain Subsidiary Guarantee, dated as of the date
hereof (“Guarantee”), the Guarantors have jointly and severally agreed to
guarantee and act as surety for payment of such Notes;

WHEREAS, contemporaneously herewith the Grantors are entering into a Security
Agreement (“Security Agreement”), pursuant to which each Grantor has granted a
security interest in its assets and properties to secure the satisfaction of the
Company’s obligations under the Notes and the Guarantor’s obligations under the
Guarantee, among other things; and
 
WHEREAS, the Grantors are obligated under the Security Agreement to take such
further actions as the collateral Agent (as defined therein) requests to further
perfect the Lenders’ security interest granted under the Security Agreement,
including without limitation with respect to intellectual property;
 
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantors hereby agree as follows:
 
DEFINED TERMS.
 
(a)          Certain Defined Terms.  As used in this Agreement, the following
terms shall have the meanings set forth below:
 
“Copyright” means copyrights and copyright registrations, including without
limitation the copyright registrations and recordings listed on Schedule I
attached hereto, if any, in which the Grantors have any right, title and
interest, and (i) all reissues, continuations, extensions or renewals thereof,
(ii) all income, royalties, damages and payments now and hereafter due and/or
payable under and with respect thereto, subject to payment to any co-owner of
its, his or her share thereof, including without limitation payments under all
licenses entered into in connection therewith and damages and payments for past
or future infringements thereof, (iii) the right to sue for past, present and
future infringements thereof, and (iv) all of the Grantors’ rights corresponding
thereto throughout the world.
 
 
1

--------------------------------------------------------------------------------

 

“Intellectual Property Licenses” means rights under or interest in any patent,
trademark, copyright or other intellectual property, including software license
agreements with any other party, whether the Grantors are a licensee or licensor
under any such license agreement, and the right to use the foregoing in
connection with the enforcement of the Lenders’ rights pursuant to the Security
Agreement.
 
“Patent” means patents and patent applications, including without limitation the
patents and patent applications listed on Schedule I hereto and all
continuations, divisionals, provisionals, continuations in part, or reissues of
applications related to patents thereon, and (i) all renewals thereof, (ii) all
income, royalties, damages and payments now and hereafter due and/or payable
under and with respect thereto, subject to payment to any co-owner or inventor
of its, his or her share thereof, including without limitation payments under
all licenses entered into in connection therewith and damages and payments for
past or future infringements or dilutions thereof, (iii) the right to sue for
past, present and future infringements thereof, and (iv) all of the Grantors’
rights corresponding thereto throughout the world.
 
“Trademark” means trademarks, trade names, registered trademarks, trademark
applications, service marks, registered service marks and service mark
applications, including without limitation the registered trademarks listed on
Schedule I hereto, and (i) all renewals thereof, (ii) all income, royalties,
damages and payments now and hereafter due and/or payable under and with respect
thereto, subject to payment to any co-owner of its, his or her share thereof,
including without limitation payments under all licenses entered into in
connection therewith and damages and payments for past or future infringements
or dilutions thereof, (iii) the right to sue for past, present and future
infringements and dilutions thereof, (iv) the goodwill of the Grantors’ business
symbolized by the foregoing and connected therewith, and (v) all of the
Grantors’ rights corresponding thereto throughout the world.
 
(b)           Terms Defined in the Purchase Agreement.  Capitalized terms used
in this Agreement and not otherwise defined herein have the meanings ascribed to
them in the Purchase Agreement.
 
2.             GRANT OF SECURITY INTEREST IN INTELLECTUAL PROPERTY
COLLATERAL.  Grantors hereby grant to Lenders a continuing second priority
security interest (as set forth in the Security Agreement) in all of Grantors’
right, title and interest in, to and under all of Grantors’ Intellectual
Property (as defined in the Security Agreement), including without limitation
the following, whether presently existing or hereafter created or acquired
(collectively, the “Intellectual Property Collateral”):
 
(a)           all of Grantors’ Patents and Grantors’ rights under all Patent
Intellectual Property Licenses to which it is a party, including those patents
referred to on Schedule I hereto, including:
 
 
(i)
all registrations and applications in respect of the foregoing, including
continuations, divisionals, provisionals, continuations in part, or reissues of
applications and patents issuing thereon; and

 
 
2

--------------------------------------------------------------------------------

 

 
(ii)
all products and proceeds of the foregoing, including without limitation any
claim by Grantors against third parties for past, present or future infringement
of any Patent or any Patent licensed under any Intellectual Property License;

 
(b)           all of Grantors’ Trademarks and Grantors’ rights under all
Trademark Intellectual Property Licenses to which it is a party, including those
trademarks referred to on Schedule I hereto, including:
 
 
(i)
all registrations, applications, and renewals in respect of the foregoing;

 
 
(ii)
all goodwill of the business connected with the use of, and symbolized by, each
Trademark and each Trademark licensed under an Intellectual Property License;
and

 
 
(iii)
all products and proceeds of the foregoing, including without limitation any
claim by Grantor against third parties for past, present or future (i)
infringement or dilution of any Trademark or any Trademark licensed under any
Intellectual Property License or (ii) injury to the goodwill associated with any
Trademark or any Trademark licensed under any Intellectual Property License; and

 
(c)           all of Grantors’ Copyrights and Grantors’ rights under all
Copyright Intellectual Property Licenses to which it is a party, including those
referred to on Schedule I hereto, including:
 
 
(i)
all registrations, applications, and renewals in respect of the foregoing; and

 
 
(ii)
all products and proceeds of the foregoing, including without limitation any
claim by Grantors against third parties for past, present or future infringement
of any Copyright or any Copyright licensed under any Intellectual Property
License.

 
3.             SECURITY AGREEMENT.  The security interests granted pursuant to
this Agreement are granted in conjunction with the security interests granted to
Lenders pursuant to the Security Agreement.  Grantors hereby acknowledge and
affirm that the rights and remedies of Lenders with respect to the security
interest in the Intellectual Property Collateral made and granted hereby are
more fully set forth in the Security Agreement, the terms and provisions of
which are incorporated by reference herein as if fully set forth herein.  Each
Lender acknowledges that the priorities set forth herein are subject to the
terms of the Intercreditor Agreement.
 
4.             AUTHORIZATION TO SUPPLEMENT.  If Grantors shall obtain rights to
any new Intellectual Property (as defined in the Security Agreement), the
provisions of this Agreement shall automatically apply thereto.  Grantors shall
give Lenders prompt written notice with respect to any such material new
Intellectual Property.  Grantors represent that Schedule I is substantially
accurate and complete but reserve the right from time to time to correct
inaccuracies and/or omissions by giving Lenders written notice thereof.  Without
limiting Grantors’ obligations under this Section 4, Grantors hereby authorize
Lenders unilaterally to modify this Agreement by amending Schedule I to include
any such corrections and other modifications and any such new Intellectual
Property of Grantors.  Notwithstanding the foregoing, no failure to so modify
this Agreement or amend Schedule I shall in any way affect, invalidate or
detract from Lenders’ continuing security interest in all Intellectual Property
Collateral, whether or not listed on Schedule I.
 
 
3

--------------------------------------------------------------------------------

 
 
5.             COUNTERPARTS.  This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same
instrument.  In proving this Agreement in any judicial proceedings, it shall not
be necessary to produce or account for more than one such counterpart signed by
the party against whom enforcement is sought.  Any signatures delivered by a
party by facsimile transmission or by e-mail transmission shall be deemed an
original signature hereto.
 
6.             GOVERNING LAW; JURISDICTION.  This Agreement shall be governed by
and construed under the laws of the State of New York applicable to contracts
made and to be performed entirely within the State of New York.  Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City and County of New York for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof.  Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.
 
7.             SUCCESSORS AND ASSIGNS.  The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties.  Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.  A Lender may assign its rights
hereunder in connection with any private sale or transfer of its Notes, in which
case the term “Lender” shall be deemed to refer to such transferee as though
such transferee were an original signatory hereto.  No Grantor may assign its
rights or obligations under this Agreement.
 
8.             MULTIPLE CLOSINGS.  For clarification, the Grantors acknowledge
and agree that there may be more than one Closing under the Purchase Agreement
and that this Agreement creates a security interest in the Collateral in favor
of all the Lenders regardless of when (1) any Lender executes the Purchase
Agreement or whether such Lender executes this Agreement, it being understood
that the Agent is acting as collateral agent for all Lenders, (2) any Closing
occurs or (3) any Notes are issued, without any need for the Grantors to execute
any further documentation or be notified of any Closing or for any other action
to occur.
 
 
[Signature Pages Follow]
 
 
4

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, each of the Grantors have caused this Intellectual Property
Security Agreement to be executed and delivered by its duly authorized officer
as of the date first set forth above.
 

 
BLUE HOLDINGS, INC.
                   
By: 
 /s/ Glenn S. Palmer
     
Name: Glenn S. Palmer
     
Title: Chief Executive Officer
                   
ANTIK DENIM, LLC
                   
By: 
 /s/ Glenn S. Palmer
     
Name: Glenn S. Palmer
     
Title: Chief Executive Officer
                   
TAVERNITI SO JEANS, LLC
                   
By:  
 /s/ Glenn S. Palmer
     
Name: Glenn S. Palmer
     
Title: Chief Executive Officer
 

 
 
5

--------------------------------------------------------------------------------

 
 

 
ACCEPTED AND ACKNOWLEDGED BY:
         
GEMINI MASTER FUND, LTD.
   
By:
GEMINI STRATEGIES, LLC, as investment manager
                   
By: 
/s/Steven Winters
     
Steven Winters
     
Managing Member
           
GEMINI STRATEGIES, LLC, as collateral Agent for the Lenders
                   
By: 
/s/Steven Winters
     
Steven Winters
     
Managing Member
 

 
 
6

--------------------------------------------------------------------------------