Exhibit 10.1

 

ASSET PURCHASE AGREEMENT

 

by

 

and

 

among

 

CYGNE DESIGNS, INC.,

INNOVO AZTECA APPAREL, INC.,

AND INNOVO GROUP, INC.

 

 

Dated March 31, 2006

 

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TABLE OF CONTENTS

 

 

 

Page

ARTICLE 1

Definitions

1

ARTICLE 2.

Purchase and Sale of Assets

8

 

2.1

Purchase and Sale of Assets

8

 

2.2

Assumed Liabilities

8

ARTICLE 3.

Purchase Price

8

 

3.1

Purchase Price

8

ARTICLE 4.

Closing

9

 

4.1

The Closing

9

 

4.2

Deliveries at the Closing

9

 

4.3

Obtaining Further Consents

10

ARTICLE 5.

Representations and Warranties of Buyer

10

 

5.1

Organization of Buyer

11

 

5.2

Authority of Buyer; Enforceability

11

 

5.3

No Violation

11

 

5.4

No Finder

11

 

5.5

[Intentionally Omitted]

11

 

5.6

Litigation

11

 

5.7

Solvency

12

 

5.8

Representations Complete

12

ARTICLE 6.

Representations and Warranties Concerning INNOVO, Seller and the business

12

 

6.1

Entity Status

12

 

6.2

Power and Authority; Enforceability

12

 

6.3

No Violation

13

 

6.4

Brokers’ Fees

13

 

6.5

Financial Statements

13

 

6.6

Subsequent Events

14

 

6.7

Compliance with Law

14

 

6.8

Legal Compliance

14

 

6.9

Tax Matters

14

 

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6.10

Title to Purchased Assets

15

 

6.11

Intellectual Property

15

 

6.12

Contracts

16

 

6.13

Purchase Commitments

17

 

6.14

Litigation

17

 

6.15

Product Warranty

17

 

6.16

Employees

17

 

6.17

Employee Benefits

19

 

6.18

Environmental, Health, and Safety Matters

19

 

6.19

Customers and Suppliers

19

 

6.20

Permits

20

 

6.21

Solvency

20

 

6.22

Accuracy of Information Furnished

20

 

6.23

Certain Business Practices.

21

 

6.24

Proxy Statement

21

 

6.25

Fairness Opinion

21

 

6.26

Representations Complete

21

ARTICLE 7.

Pre-Closing Covenants

22

 

7.1

General

22

 

7.2

Notices and Consents

22

 

7.3

Operation of Business

22

 

7.4

Preservation of Business

23

 

7.5

Full Access

23

 

7.6

Notice of Developments

23

 

7.7

Exclusivity

23

 

7.8

Confidentiality; Publicity

23

 

7.9

Charges and Fees

24

ARTICLE 8.

Additional Covenants

24

 

8.1

General

24

 

8.2

Litigation Support

25

 

8.3

Transition

25

 

8.4

Confidentiality

25

 

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8.5

Restrictive Covenants

26

 

8.6

Use of Names

27

 

8.7

Taxes

27

 

8.8

Employees and Employee Benefit Plans

28

 

8.9

Payment of Non-Assumed Liabilities

30

 

8.10

No Liability

30

 

8.11

Updated Financial Statements.

31

 

8.12

Preparation of the Proxy Statement; Stockholder’s Meeting.

31

ARTICLE 9.

Closing Conditions

32

 

9.1

Conditions Precedent to Obligations of Buyer

32

 

9.2

Conditions Precedent to Obligations of the Seller

33

ARTICLE 10.

Termination

34

 

10.1

Termination of Agreement

34

 

10.2

Effect of Termination

35

ARTICLE 11.

Indemnification

35

 

11.1

Survival of Representations and Warranties

35

 

11.2

Indemnification Provisions for Buyer’s Benefit

35

 

11.3

Indemnification Provisions for Seller’s Benefit

36

 

11.4

Indemnification Claim Procedures

36

 

11.5

Limitations on Indemnification Liability

38

 

11.6

[Intentionally Omitted]

38

 

11.7

No Wavier of Rights or Remedies

38

 

11.8

Other Indemnification Provisions

39

ARTICLE 12.

Miscellaneous

39

 

12.1

Schedules

39

 

12.2

Entire Agreement

39

 

12.3

Successors

40

 

12.4

Assignments

40

 

12.5

Notices

40

 

12.6

Specific Performance

41

 

12.7

Submission to Jurisdiction; Process Agent; No Jury Trial

41

 

12.8

Time

42

 

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12.9

Counterparts

42

 

12.10

Headings

42

 

12.11

Governing Law

42

 

12.12

Amendments and Waivers

43

 

12.13

Severability

43

 

12.14

Expenses

43

 

12.15

Construction

43

 

12.16

Incorporation of Exhibits and Schedules

44

 

12.17

Remedies

44

 

EXHIBITS

 

EXHIBIT A

Form of Bill of Sale and Assignment of Contract Rights

EXHIBIT B

Azteca Note

EXHIBIT C

Assumption and Assignment Agreement

EXHIBIT D

Form of Seller’s Officer’s Certificate

EXHIBIT E

Form of Seller’s Secretary’s Certificate

EXHIBIT F

Form of Buyer’s Officer’s Certificate

EXHIBIT G

Form of Buyer’s Secretary’s Certificate

EXHIBIT H

Seller Release

 

SCHEDULES

 

Schedule 1.1

Purchased Assets

Schedule 2.2

Assumed Liabilities

Schedule 5.3

Buyer Required Consents

Schedule 5.6

Buyer Litigation

Schedule 6.3

Seller Required Consents

Schedule 6.6

Subsequent Events

Schedule 6.12

Contracts

Schedule 6.14

Seller Litigation

Schedule 6.15

Standard Terms of Sale or Lease

Schedule 6.16(a)

Current Employees and Directors

Schedule 6.16(b)

Terminated Employees

Schedule 6.17

Employee Benefits

Schedule 6.18

Environmental Matters

Schedule 6.19

Suppliers

Schedule 6.20

Permits

 

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Asset Purchase Agreement

 

This Asset Purchase Agreement dated March 31, 2006 (the “Execution Date”), is by
and among (i) CYGNE DESIGNS, INC., a Delaware corporation (“Buyer”), (ii) INNOVO
AZTECA APPAREL, INC., a California corporation (“Seller”) and (iii) INNOVO
GROUP, INC., a Delaware Corporation (“Innovo”).

 

RECITALS

 

A.            Seller is engaged in the business of designing, manufacturing and
wholesaling denim and other related apparel and products.

 

B.            Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, certain assets and properties used by Seller in the operation of
its private label portion of its business (the “Business”), all on the terms and
subject to the conditions set forth herein.

 

C.            Innovo has joined as a party to this Agreement as a result of
certain assignments, assumptions and releases contemplated herein to which it is
an interested party.

 

AGREEMENT:

 

NOW, THEREFORE, in consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties, and covenants
contained herein, the Parties agree as follows:

 

ARTICLE 1.
DEFINITIONS

 

“Action” means any action, appeal, petition, plea, charge, complaint, claim,
suit, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence, or proceeding.

 

“Active Employees” is defined in Section 8.8(a)

 

“AEO” means American Eagle Outfitters, Inc. and its subsidiaries, divisions and
Affiliates.

 

“Affiliate” or “Affiliated” with respect to any specified Person means a Person
that, directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such specified Person.  For this
definition, “control” (and its derivatives) means the possession, directly or
indirectly, or as trustee or executor, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting Equity Interests, as trustee or executor, by Contract or credit
arrangements or otherwise.

 

“Affiliated Group” means an affiliated group under Code Section 1504(a) or any
similar group defined under provisions of applicable Law.

 

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“Agreement” means this Asset Purchase Agreement, together with all Exhibits and
Schedules hereto, as the same may be amended, supplemented or otherwise modified
from time to time in accordance with Section 12.12.

 

“APA” means that certain Asset Purchase Agreement by and among Azteca Production
International, Inc. (“API”), Seller and Hubert Guez and Paul Guez dated July 17,
2003.

 

“Assumption and Assignment Agreement” means the Assumption and Assignment
Agreement in substantially the form of Exhibit C.

 

“Assumed Liabilities” means the liabilities of Seller listed in Schedule 2.2
hereto. 

 

“AZT International” means AZT International SA DE CV, a Mexico corporation and
wholly-owned subsidiary of API.

 

“Azteca Note” means the promissory note issued by Seller to API dated July 17,
2003, pursuant to the APA, a copy of which is attached hereto as Exhibit B.

 

“Basis” means any past or current fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction about which the relevant Person has Knowledge
that forms or could form the basis for any specified consequence.

 

“Best Efforts” means the efforts, time, and costs that a prudent Person desirous
of achieving a result would use, expend, or incur in similar circumstances to
ensure that such result is achieved as expeditiously as possible; provided,
however, that no such use, expenditure, or incurrence will be required if it
would have a Material Adverse Effect on such Person calculated immediately prior
to the Closing Date.

 

“Bill of Sale” means the Bill of Sale and Assignment of Contract Rights in the
form of Exhibit A.

 

“Breach” means (a) any breach, inaccuracy, failure to perform, failure to
comply, conflict with, failure to notify, default, or violation or (b) any other
act, omission, event, occurrence or condition the existence of which would (i)
permit any Person to accelerate any obligation or terminate, cancel, or modify
any right or obligation or (ii) require the payment of money or other
consideration.

 

“Business” is defined in the Recitals to this Agreement.

 

“Buyer” is defined in the preamble to this Agreement.

 

“Buyer Note” means the promissory note of Buyer in substantially the form of
Exhibit B.

 

“Cash” means cash and cash equivalents (including marketable securities and
short term investments) calculated in accordance with GAAP applied on a basis
consistent with the preparation of the Financial Statements.

 

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“Closing” is defined in Section 4.1.

 

“Closing Date” has the meaning specified in Section 4.1.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Commitment” means (a) options, warrants, convertible securities, exchangeable
securities, subscription rights, conversion rights, exchange rights, or other
Contracts that could require a Person to issue any of its Equity Interests or to
sell any Equity Interests it owns in another Person; (b) any other securities
convertible into, exchangeable or exercisable for, or representing the right to
subscribe for any Equity Interest of a Person or owned by a Person; (c)
statutory pre-emptive rights or pre-emptive rights granted under a Person’s
Organizational Documents; and (d) stock appreciation rights, phantom stock,
profit participation, or similar rights with respect to a Person.

 

“Confidential Information” means any information concerning the businesses and
affairs of either the Buyer, on the one hand, or the Business and Seller, on the
other hand.

 

“Consent” means any consent, approval, notification, waiver, or other similar
action that is necessary or convenient.

 

“Contract” means any contract, agreement, arrangement, commitment, letter of
intent, memorandum of understanding, heads of agreement, promise, obligation,
right, instrument, document, purchase order, or other similar understanding,
whether written or oral.

 

“Copyrights” means copyrights, whether registered or unregistered, in published
works and unpublished works, and pending applications to register the same.

 

“Customer Consents” means the written consents by AEO and Target to the
Transactions in a form reasonably satisfactory to the Seller and Buyer.

 

“Encumbrance” means any Order, Security Interest, Contract, easement, covenant,
community property interest, equitable interest, right of first refusal, or
restriction of any kind, including any restriction on use, voting, transfer,
receipt of income, or exercise of any other attribute of ownership.

 

“Enforceable”   a Contract is “Enforceable” if it is the legal, valid, and
binding obligation of the applicable Person enforceable against such Person in
accordance with its terms, except as such enforceability may be subject to the
effects of bankruptcy, insolvency, reorganization, moratorium, or other Laws
relating to or affecting the rights of creditors, and general principles of
equity.

 

“Environmental, Health, and Safety Requirements” means all Orders, Contracts,
Laws, and programs (including those promulgated or sponsored by industry
associations, insurance companies, and risk management companies) concerning or
relating to public health and safety, worker/occupational health and safety, and
pollution or protection of the environment, including those relating to the
presence, use, manufacturing, refining, production, generation, handling,
transportation, treatment, recycling, transfer, storage, disposal, distribution,
importing, labeling,

 

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testing, processing, discharge, release, threatened release, control, or other
action or failure to act involving cleanup of any hazardous materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise, or radiation, each as amended and as now or
hereafter in effect.

 

“Equity Interest” means (a) with respect to a corporation, any and all shares of
capital stock and any Commitments with respect thereto, (b) with respect to a
partnership, limited liability company, trust or similar Person, any and all
units, interests, or other partnership/limited liability company interests , and
any Commitments with respect thereto, and (c) any other direct or indirect
equity ownership or participation.

 

“ERISA” means the Employee Retirement Income Security Act of 1974.

 

“ERISA Affiliate” means each business or entity which is a member of a
“controlled group of corporations,” under “common control” or an “affiliated
service group” with Seller within the meaning of Sections 414(b), (c), or (m) of
the Code, or required to be aggregated with Seller under Section 414(o) of the
Code, or is under “common control” with Seller within the meaning of Section
4001(a)(14) of ERISA.

 

“Execution Date” is defined in the preamble to this Agreement.

 

“Expiration Date” means June 30, 2006.

 

“GAAP” means United States generally accepted accounting principles as in effect
from time to time.

 

“Governmental Body” means any legislature, agency, bureau, branch, department,
division, commission, court, tribunal, magistrate, justice, multi-national
organization, quasi-governmental body, or other similar recognized organization
or body of any federal, state, county, municipal, local, or foreign government
or other similar recognized organization or body exercising similar powers or
authority.

 

“Hired Active Employees” is defined in Section 8.8(b)(i).

 

“Indemnification Claim” is defined in Section 11.4(a).

 

“Indemnified Buyer Parties” means Buyer and its officers, directors, managers,
employees, agents, representatives, controlling Persons, stockholders, and their
Affiliates.

 

“Indemnified Parties” means, individually and as a group, the Indemnified Buyer
Parties and the Indemnified Seller.

 

“Indemnified Seller” means Seller and its officers, directors, managers,
employees, agents, representatives, controlling Persons, and stockholders
(including Innovo).

 

“Indemnitor” means any Party having any Liability to any Indemnified Party under
this Agreement.

 

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“Innovo” is defined in the preamble to this Agreement.

 

“Innovo Shareholder Approval” is defined in Section 9.2(c).

 

“Intellectual Property” means any rights, licenses, liens, security interests,
charges, encumbrances, equities, and other claims that any Person may have to
claim ownership, authorship or invention, to use, to object to or prevent the
modification of, to withdraw from circulation, or control the publication or
distribution of any Marks, Patents, Copyrights, or Trade Secrets.

 

“IRS” means the Internal Revenue Service.

 

“Knowledge” means the knowledge of a Person’s officers and directors as of the
Execution Date and the Closing Date after due investigation.  With respect to
particular areas of interest, “Knowledge” will include the knowledge of such
Person’s employees charged with responsibility for a particular area of such
Person’s operations.

 

“Law” means any law (statutory, common, or otherwise), constitution, treaty,
convention, ordinance, equitable principle, code, rule, regulation, executive
order, or other similar authority enacted, adopted, promulgated, or applied by
any Governmental Body, each as amended and now and hereinafter in effect.

 

“Liability” or “Liable” means any liability or obligation, whether known or
unknown, asserted or unasserted, absolute or contingent, matured or unmatured,
conditional or unconditional, latent or patent, accrued or unaccrued, liquidated
or unliquidated, or due or to become due.

 

“Marks” means all fictitious business names, trading names, corporate names,
registered and unregistered trademarks, service marks, and applications.

 

“Material Adverse Change (or Effect)” means a change (or effect) in the
condition (financial or otherwise), properties, assets, Liabilities, rights,
obligations, operations, business, or prospects of a Person which change (or
effect), individually or in the aggregate, could reasonably be expected to be
materially adverse to such Person’s condition, properties, assets, Liabilities,
rights, obligations, operations, business, or prospects.

 

“Material Consents” is defined in Section 9.1(e).

 

“Material Contracts” is defined in Section 6.12.

 

“Order” means any order, ruling, decision, verdict, decree, writ, subpoena,
mandate, precept, command, directive, consent, approval, award, judgment,
injunction, or other similar determination or finding by, before, or under the
supervision of any Governmental Body, arbitrator, or mediator.

 

“Ordinary Course of Business” means the ordinary course of business consistent
with past custom and practice (including with respect to quantity, quality and
frequency) of the

 

5

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relevant Person and its Subsidiaries in the industry in which the relevant
Person and its Subsidiaries does business.

 

“Organizational Documents” means the articles of incorporation, certificate of
incorporation, charter, bylaws, articles of formation, regulations, operating
agreement, certificate of limited partnership, partnership agreement, and all
other similar documents, instruments or certificates executed, adopted, or filed
in connection with the creation, formation, or organization of a Person,
including any amendments thereto.

 

“Parties” is defined in the preamble to this Agreement.

 

“Patents” means all (a) patents and patent applications, and (b) business
methods, inventions, and discoveries that may be patentable.

 

“PBGC” means the Pension Benefit Guaranty Corporation.

 

“Permit” means any permit, license, certificate, approval, consent, notice,
waiver, franchise, registration, filing, accreditation, or other similar
authorization required by any Law, Governmental Body, or Contract.

 

“Person” means any individual, partnership, limited liability company,
corporation, association, joint stock company, trust, entity, joint venture,
labor organization, unincorporated organization, or Governmental Body.

 

“Purchase Price” is defined in Section 3.1.

 

“Purchased Assets” means all right, title and interest that Seller possesses and
has the right to transfer in and to all of the assets listed on Schedule 1.1
hereto.

 

“Qualifying Offer” means an offer of employment by Buyer to an Active Employee
that would provide such Active Employee (i) an annual base salary or wage that
is at least one hundred percent (100%) of the applicable Active Employee’s
current base salary or wage level, (ii) eligibility to participate in employee
benefit plans (within the meaning of Section 3(3) of ERISA) that are
substantially similar to those provided to similarly situated employees of Buyer
who are not covered by a collective bargaining agreement, and (iii)
substantially similar duties and responsibilities as such Active Employee had
prior to Closing.

 

“Schedules” mean the Schedules to this Agreement.

 

“Security Interest” means any security interest, deed of trust, mortgage,
pledge, lien, charge, claim, or other similar interest or right, except for (i)
liens for Taxes, assessments, governmental charges, or claims that are being
contested in good faith by appropriate Actions promptly instituted and
diligently conducted and only to the extent that a reserve or other appropriate
provision, if any, has been made on the face of the Financial Statements in an
amount equal to the Liability for which the lien is asserted, (ii) statutory
liens of landlords and warehousemen’s, carriers’, mechanics’, suppliers’,
materialmen’s, repairmen’s, or other like liens (including Contractual
landlords’ liens) arising in the Ordinary Course of Business and with respect to
amounts not yet delinquent and being contested in good faith by appropriate

 

6

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proceedings, only to the extent that a reserve or other appropriate provision,
if any, has been made on the face of the Financial Statements in an amount equal
to the Liability for which the lien is asserted; and (iii) liens incurred or
deposits made in the Ordinary Course of Business in connection with workers’
compensation, unemployment insurance and other similar types of social security.

 

“Seller” is defined in the preamble to this Agreement.

 

“Seller Release” means the Release in the form of Exhibit H.

 

“Software” means computer software or middleware.

 

“Subsidiary” means, with respect to any Person: (a) any corporation of which
more than 50% of the total voting power of all classes of the Equity Interests
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors is owned by such Person directly or through one or more
other Subsidiaries of such Person and (b) any Person other than a corporation of
which at least a majority of the Equity Interest (however designated) entitled
(without regard to the occurrence of any contingency) to vote in the election of
the governing body, partners, managers or others that will control the
management of such entity is owned by such Person directly or through one or
more other Subsidiaries of such Person.

 

“Target” means Target Corporation and its subsidiaries, divisions and
Affiliates.

 

“Tax” and “Taxes” includes (1) any federal, state, local or foreign income,
gross receipts, capital, franchise, import, goods and services, value added,
sales and use, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, excise, natural resources, severance, stamp, occupation,
premium, windfall profit, environmental, customs, duties, real property,
personal property, capital stock, social security, unemployment, disability,
payroll, license, employee withholding, unclaimed property, escheat or other tax
of any kind whatsoever, including any interest, penalties or additions to tax or
additional amounts in respect of the foregoing, (2) any liability for the
payment of any amounts of the type described in (1) as a result of being a
member of a consolidated, combined, unitary or aggregate group for any Taxable
period, and (3) any liability for the payment of any amounts of the type
described in (1) or (2) as a result of being a transferee or successor to any
Person or as a result of any express or implied obligation to indemnify any
other Person.

 

“Tax Return” means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes required to be filed with any
Governmental Body, including any schedule or attachment thereto, and including
any amendment thereof.

 

“Termination Date” means the earlier to occur of (a) the Expiration Date and (b)
the date on which this Agreement is terminated pursuant to Section 10.1 (other
than Section 10.1(b)).

 

“Threatened” means a demand or statement has been made (orally or in writing) or
a notice has been given (orally or in writing), or any other event has occurred
or any other circumstances exist that would lead a prudent Person to conclude
that a cause of Action or other matter is likely to be asserted, commenced,
taken, or otherwise initiated.

 

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“Trade Secrets” means all know-how, trade secrets, confidential information,
customer lists, Software (source code and object code), technical information,
data, process technology, plans, drawings, and blue prints.

 

“Transaction Documents” means this Agreement, Assumption and Assignment
Agreement, the Azteca Note and the Bill of Sale.

 

“Transactions” means: (a) the sale of the Purchased Assets by Seller to Buyer
and Buyer’s delivery of the Purchase Price therefor; (b) the execution,
delivery, and performance of all of the documents, instruments, and agreements
to be executed, delivered, and performed in connection herewith including each
Transaction Document; and (c) the performance by Buyer and the Seller of their
respective covenants and obligations (pre- and post-Closing) under this
Agreement.

 

“Treas. Reg.” means the proposed, temporary and final regulations promulgated
under the Code.

 

“WARN Act” is defined in Section 6.16(c).

 

ARTICLE 2.
PURCHASE AND SALE OF ASSETS

 

2.1          Purchase and Sale of Assets.

 

On and subject to the terms and conditions of this Agreement, Buyer agrees to
purchase from Seller, and Seller agrees to sell, transfer, convey, and deliver
to Buyer, all of the Purchased Assets, free and clear of any Encumbrances (other
than the Assumed Liabilities) for the consideration specified in ARTICLE 3
below.

 

2.2          Assumed Liabilities.

 

Buyer agrees to assume and be responsible for the Assumed Liabilities listed on
Schedule 2.2 hereof at the Closing and will enter into the Assumption and
Assignment Agreement with Seller and Innovo.  Buyer will not assume or have any
responsibility, however, with respect to any other liability or obligation of
Seller not listed on such Schedule (any such liability or obligation of Seller
not listed on such Schedule being hereinafter referred to as an “Excluded
Liability”).

 

ARTICLE 3.
PURCHASE PRICE

 

3.1          Purchase Price.

 

(A)                           THE AGGREGATE PURCHASE PRICE FOR THE PURCHASED
ASSETS SHALL BE $10,436,654.71 (THE “PURCHASE PRICE”), SUBJECT TO ADJUSTMENT
UNDER SECTION 3.1(B) BELOW, CONSISTING OF BUYER’S ASSUMPTION OF THE ASSUMED
LIABILITIES AT CLOSING AS SET FORTH IN SECTION 2.2 ABOVE, INCLUDING (I) THE
BUYER NOTE TO BE EXECUTED BY BUYER AT CLOSING IN FAVOR OF API, THE PRINCIPAL
AMOUNT OF WHICH SHALL BE THE OUTSTANDING AMOUNTS OWED BY SELLER UNDER THE AZTECA

 

8

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NOTE AS OF THE CLOSING DATE, WITH THE AZTECA NOTE TO BE CANCELLED AND SATISFIED
BY API AT CLOSING AND ALL OBLIGATIONS OF SELLER THEREUNDER ASSUMED BY BUYER
UNDER THE BUYER NOTE AND (II) THE RELATED PARTY BALANCE; AND

 

(B)                           THE PURCHASE PRICE IS BASED ON THE ESTIMATION THAT
THE LIABILITIES ASSUMED AT THE CLOSING (EXCLUDING THE AZTECA NOTE) CONSIST OF
$2,500,000 OF INNOVO’S OBLIGATIONS TO API (THE “RELATED PARTY BALANCE”).  IF THE
RELATED PARTY BALANCE AS OF THE CLOSING DATE EXCEEDS $2,600,000 (THE “RELATED
PARTY BALANCE THRESHOLD”), THEN THE PURCHASE PRICE SHALL BE INCREASED, DOLLAR
FOR DOLLAR, BY THE AMOUNT OF THE DIFFERENCE BETWEEN THE RELATED PARTY BALANCE
AND THE RELATED PARTY BALANCE THRESHOLD.  TO THE EXTENT THAT THE AGGREGATE VALUE
OF THE RELATED PARTY BALANCE DOES NOT EXCEED OR IS BELOW THE RELATED PARTY
BALANCE THRESHOLD THEN NO ADJUSTMENT SHALL BE MADE TO THE PURCHASE PRICE.

 

(C)                           SCHEDULE 3.1 SETS FORTH AN ALLOCATION OF THE
PURCHASE PRICE (AND ALL OTHER CAPITALIZED COSTS) AMONG THE PURCHASED ASSETS OF
THE SELLER IN ACCORDANCE WITH SECTION 1060 OF THE CODE AND THE TREASURY
REGULATIONS THEREUNDER (AND ANY SIMILAR PROVISION OF STATE, LOCAL OR FOREIGN
LAW, AS APPROPRIATE), SUBJECT TO ANY ADJUSTMENT TO THE PURCHASE PRICE PURSUANT
TO SECTION 8.7(D) AND ARTICLE 11.  BUYER AND SELLER AND THEIR RESPECTIVE
AFFILIATES SHALL REPORT, ACT AND FILE TAX RETURNS (INCLUDING, BUT NOT LIMITED TO
IRS FORMS 8594) IN ALL RESPECTS AND FOR ALL PURPOSES CONSISTENT WITH SCHEDULE
3.1.  NEITHER BUYER NOR SELLER SHALL TAKE ANY POSITION (WHETHER IN AUDITS, TAX
RETURNS OR OTHERWISE) WHICH IS INCONSISTENT WITH SUCH ALLOCATION UNLESS REQUIRED
TO DO SO BY APPLICABLE LAW.

 

ARTICLE 4.
CLOSING

 

4.1          The Closing.

 

The closing of the purchase and sale of the Purchased Assets (the “Closing”)
will take place at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue,
New York, New York 10103, or any other mutually agreed upon location or time, on
the third business day following the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the purchase and sale of the
Purchased Assets (other than conditions with respect to actions the respective
Parties will take at the Closing itself) or such other date as Buyer and Seller
may mutually determine (the “Closing Date”).

 

4.2          Deliveries at the Closing.

 

At the Closing:

 

(A)           SELLER WILL DELIVER TO BUYER:

 

(I)            THE BILL OF SALE, DULY EXECUTED BY SELLER.

 

(II)           THE ASSUMPTION AND ASSIGNMENT AGREEMENT, DULY EXECUTED BY SELLER,
INNOVO AND BUYER.

 

(III)          THE CUSTOMER CONSENTS DULY EXECUTED BY AEO AND TARGET.

 

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(IV)          SUCH OTHER BILLS OF SALE, ASSIGNMENTS, AND OTHER INSTRUMENTS OF
TRANSFER OR CONVEYANCE AS BUYER MAY REASONABLY REQUEST OR AS MAY BE OTHERWISE
NECESSARY TO EVIDENCE AND EFFECT THE SALE, ASSIGNMENT, TRANSFER, CONVEYANCE, AND
DELIVERY OF THE PURCHASED ASSETS TO BUYER.

 

(V)           AN OFFICERS’ CERTIFICATE, SUBSTANTIALLY IN THE FORM OF EXHIBIT D,
DULY EXECUTED ON SELLER’S BEHALF, AS TO WHETHER EACH CONDITION SPECIFIED IN
SECTIONS 9.1(A) THROUGH 9.1(D) HAS BEEN SATISFIED IN ALL RESPECTS.

 

(VI)          A DULY EXECUTED CERTIFICATE IN THE FORM SPECIFIED BY TREASURY
REGULATION SECTION 1.1445-2(B)(2).

 

(VII)         A SECRETARY’S CERTIFICATE FOR SELLER, SUBSTANTIALLY IN THE FORM OF
EXHIBIT E, DULY EXECUTED ON BEHALF OF SELLER.

 

(B)           BUYER WILL DELIVER THE FOLLOWING TO SELLER:

 

(I)            THE ASSUMPTION AND ASSIGNMENT AGREEMENT, DULY EXECUTED BY BUYER.

 

(II)           AN OFFICERS’ CERTIFICATE, SUBSTANTIALLY IN THE FORM OF EXHIBIT F,
DULY EXECUTED ON BUYER’S BEHALF, AS TO WHETHER EACH CONDITION SPECIFIED IN
SECTIONS 9.2(A) THROUGH 9.2(D)(I) HAS BEEN SATISFIED IN ALL RESPECTS.

 

(III)          A SECRETARY’S CERTIFICATE, SUBSTANTIALLY IN THE FORM OF EXHIBIT
G, DULY EXECUTED ON BUYER’S BEHALF.

 

4.3          Obtaining Further Consents.

 

Anything in this Agreement to the contrary notwithstanding, this Agreement shall
not constitute an agreement to assign any of the Purchased Assets or any claim
or right or any benefit arising thereunder or resulting therefrom if an
attempted assign thereof, without the consent of a third Person, would
constitute a breach or other contravention thereof or in any way adversely
affect the rights of Buyer thereunder.  The Seller will use its Best Efforts to
obtain the consent of any such Person for the assignment to Buyer of any such
Purchased Asset.  If such consent is not obtained prior to Closing, or if an
attempted assignment thereof would be ineffective or would adversely affect the
rights of Seller thereunder so that Buyer would not in fact receive all such
rights, then Buyer, its sole discretion, may elect to waive the closing
condition and in such event the Seller and Buyer agree to cooperate in devising
and implementing a mutually satisfactory arrangement under which Buyer would
obtain substantially all of the benefits from and after the Closing Date in
accordance with this Agreement.

 

ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer represents and warrants to Seller that the statements contained in this
ARTICLE 5 are correct and complete as of the Execution Date and will be correct
and complete as of the Closing Date (as though made then and except as expressly
provided in a representation or

 

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warranty, as though the Closing Date were substituted for the Execution Date
throughout this ARTICLE 5), except as set forth in the Schedules that Buyer has
delivered to Seller on the Execution Date.

 

5.1          Organization of Buyer.

 

Buyer is a corporation duly organized, validly existing, and in good standing
under the Laws of the State of Delaware.  Buyer has the requisite corporate
power and authority necessary to own or lease its properties and to carry on its
businesses as currently conducted.  There is no pending or Threatened Action (or
Basis therefor) for the dissolution, liquidation, insolvency, or rehabilitation
of Buyer.

 

5.2          Authority of Buyer; Enforceability.

 

Buyer has the relevant corporate power and authority necessary to execute and
deliver each Transaction Document to which it is a party and to perform and
consummate the Transactions contemplated by this Agreement.  Buyer has taken all
corporate action necessary to authorize the execution and delivery of each
Transaction Document to which Buyer is a party, the performance of its
obligations thereunder, and the consummation of the Transactions.  Each
Transaction Document to which Buyer is a party has been duly authorized,
executed, and delivered by, and is Enforceable against, Buyer.

 

5.3          No Violation.

 

Except as listed on Schedule 5.3, the execution and the delivery of the
Transaction Documents to which Buyer is a party by Buyer and the performance of
the Transactions by Buyer will not (a) Breach any Law or Order to which Buyer is
subject or any provision of Buyer’s Organizational Documents; (b) Breach any
Contract, Order, or Permit to which Buyer is a party or by which it is bound or
to which any of the Purchased Assets are subject; or (c) require any Consent.

 

5.4          No Finder.

 

Buyer has no Liability to pay any compensation to any broker, finder, or agent
with respect to the Transactions for which any Seller could become Liable.

 

5.5          [Intentionally Omitted].

 

5.6          Litigation.

 

Schedule 5.6 sets forth each instance in which Buyer (a) is subject to any
outstanding Order or (b) is a party, the subject of, or, to the Buyer’s
Knowledge, is Threatened to be made a party to or the subject of any Action.  No
Action required to be set forth in Schedule 5.6 questions the Enforceability of
this Agreement or the Transactions, or could result in any Material Adverse
Change with respect to Buyer.

 

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5.7          Solvency.

 

Buyer is not now insolvent, nor will Buyer be rendered insolvent by any of the
Transactions.  As used herein, “insolvent” means that the sum of the Liabilities
of Buyer exceeds the fair present value of Buyer’s assets.

 

5.8          Representations Complete.

 

Except as and to the extent set forth in this Agreement, Buyer makes no
representations or warranties whatsoever (INCLUDING ANY IMPLIED OR EXPRESS
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS) to Seller and hereby disclaims all Liability and
responsibility for any representation, warranty, statement, or information not
included herein that was made, communicated, or furnished (orally or in writing)
to Seller or its representatives (including any opinion, information,
projection, or advice that may have been or may be provided to Seller by any
director, officer, employee, agent, consultant, or representative of Buyer or
Affiliate thereof).

 

ARTICLE 6.
REPRESENTATIONS AND WARRANTIES CONCERNING INNOVO, SELLER AND THE BUSINESS

 

Seller represents and warrants to Buyer that the statements contained in this
ARTICLE 6 are correct and complete as of the Execution Date and will be correct
and complete as of the Closing Date (as though made then and, except as
expressly provided in a representation or warranty, as though the Closing Date
were substituted for the Execution Date throughout this ARTICLE 6), except as
set forth in the Schedules Seller has delivered to Buyer on the Execution Date.

 

6.1          Entity Status.

 

Seller is a corporation duly organized, validly existing, and in good standing
under the Laws of the State of California.  Seller is duly authorized to conduct
the Business and is in good standing under the laws of each jurisdiction where
the nature or operation of the Business makes such qualification necessary, all
of which jurisdictions are set forth on Schedule 6.1.  Seller has the requisite
corporate power and authority necessary to own, lease and operate the Business
as currently conducted and as proposed to be conducted.  Seller has delivered to
Buyer correct and complete copies of Seller’s Organizational Documents, as
amended to date.  Seller is not in Breach of any provision of its Organizational
Documents.  There is no pending or Threatened Action (or Basis therefor) for the
dissolution, liquidation, insolvency, or rehabilitation of Seller.

 

6.2          Power and Authority; Enforceability.

 

Each of Seller and Innovo has the relevant corporate power and authority
necessary to execute and deliver each Transaction Document to which it is a
party and to perform and consummate the Transactions.  Each of Seller and Innovo
has taken all action necessary to authorize the execution and delivery of each
Transaction Document to which it is a party, the performance of its respective
obligations thereunder, and the consummation of the Transactions.

 

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Each Transaction Document to which Seller and/or Innovo is a party has been duly
authorized, executed, and delivered by, and is Enforceable against Seller and/or
Innovo, as applicable.

 

6.3          No Violation.

 

Except as listed on Schedule 6.3, the execution and the delivery of the
applicable Transaction Documents by Seller and Innovo and the performance of its
respective obligations hereunder and thereunder, and consummation of the
Transactions by Seller or Innovo will not (a) Breach any Law or Order to which
Seller or Innovo is subject or any provision of the Organizational Documents of
Seller or Innovo; (b) Breach any Contract, Order, or Permit to which Seller or
Innovo is a party or by which it is bound or to which any of the Purchased
Assets are subject (or result in the imposition of any Encumbrance upon the
Purchased Assets); (c) require any Consent; (d) Breach any other note,
instrument, agreement, mortgage, base, license, franchise, permit or other
authorization, rights, restriction or obligation to which Seller, Innovo or API
is a party or any of the Purchased Assets is subject or by which Seller or
Innovo is bound

 

6.4          Brokers’ Fees.

 

Neither Seller nor Innovo has any Liability to pay any compensation to any
broker, finder, or agent with respect to the Transactions for which Buyer could
become directly or indirectly Liable.

 

6.5          FINANCIAL STATEMENTS.

 

Set forth on Schedule 6.5 are the following financial statements for the
Business (collectively  the “Financial Statements”):

 

(A)           UNAUDITED STATEMENTS OF REVENUES, DIRECT EXPENSES AND IDENTIFIED
CORPORATE EXPENSES BEFORE INTEREST AND TAXES AS OF AND FOR EACH OF THE FISCAL
YEARS ENDED NOVEMBER 29, 2003, NOVEMBER 27, 2004 AND NOVEMBER 26, 2005 FOR THE
BUSINESS AND THE THREE MONTHS ENDED FEBRUARY 25, 2006 AND FEBRUARY 26, 2005. 
THE FISCAL YEAR ENDED NOVEMBER 26, 2005 IS REFERRED TO HEREIN AS THE “MOST
RECENT FISCAL YEAR”.

 

(B)           UNAUDITED BALANCE SHEETS AS OF NOVEMBER 26, 2005 AND FEBRUARY 25,
2006 (THE “MOST RECENT BALANCE SHEET DATE”) FOR THE BUSINESS.

 

(C)           THE FINANCIAL STATEMENTS, WHICH HAVE BEEN EXTRACTED FROM THE BOOKS
AND RECORDS OF SELLER (WHICH BOOKS AND RECORDS ARE THE BASIS FOR SELLER’S
AUDITED CONSOLIDATED FINANCIAL STATEMENTS), HAVE BEEN PREPARED IN ACCORDANCE
WITH GAAP APPLIED ON A CONSISTENT BASIS THROUGHOUT THE PERIODS COVERED THEREBY,
PRESENT FAIRLY THE FINANCIAL CONDITION OF THE BUSINESS AS OF SUCH DATES AND THE
RESULTS OF OPERATIONS OF THE BUSINESS FOR SUCH PERIODS, ARE CORRECT AND
COMPLETE, AND ARE CONSISTENT WITH THE BOOKS AND RECORDS OF SELLER.  SINCE THE
MOST RECENT BALANCE SHEET DATE, SELLER HAS NOT EFFECTED ANY CHANGE IN ANY METHOD
OF ACCOUNTING OR ACCOUNTING PRACTICE, EXCEPT FOR ANY SUCH CHANGE REQUIRED
BECAUSE OF A CONCURRENT CHANGE IN GAAP.

 

Seller has no Knowledge that the Financial Statements cannot be audited in
accordance with Generally Accepted Auditing Standards within 75 days after the
date hereof.

 

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The Liabilities constituting the Related Party Balance were incurred in the
Ordinary Course of Business.

 

6.6          Subsequent Events.

 

Except as set forth in Schedule 6.6, since January 31, 2006, Seller has operated
the Business in the Ordinary Course of Business and there have been no events,
series of events or the lack of occurrence thereof which, singularly or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on the
Business.

 

6.7          Compliance with Law.

 

The Seller has complied in all material respects with, is not in violation in
any material respect of and has not received any notices of violation with
respect to, any applicable Law with respect to the ownership or operation of the
Business.  No investigation or review by any Governmental Body (including
without limitation any audit or similar review by any federal, state or local
taxing authority) with respect to the Business is pending or, to the Seller’s
Knowledge, Threatened, nor has any Governmental Body indicated in writing to the
Seller an intention to conduct the same.

 

6.8          Legal Compliance.

 

Seller and its respective predecessors and Affiliates have conducted the
Business in compliance with all applicable Laws, and no Action is pending or
Threatened (and there is no Basis therefor) against them alleging any failure to
so comply.  No expenditures in excess of $25,000 are, or based on applicable
Law, will be required of Seller or Buyer for the Business to remain in
compliance with applicable Law.

 

6.9          Tax Matters.

 

There are no Liabilities for Taxes relating to the Business, including Taxes
relating to prior periods, other than those for which Seller has adequately
reserved funds for payment.  Seller has duly filed when due all Tax Returns
required to be filed by or with respect to Seller, including in connection with
and in respect of the Business and the assets and employees related thereto. All
such Tax Returns have been properly prepared and timely filed and are true,
correct and complete in all material respects and have been completed in
accordance with applicable Law.  All Taxes due and owing by Seller (whether or
not shown or required to be shown on any Tax Return) have been timely paid and
discharged. Seller has withheld and paid all Taxes required to be withheld and
paid in connection with any amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party, and has otherwise
complied in all material respects with applicable Law relating to the payment
and withholding of Taxes.  Seller has made available to Buyer accurate and
complete copies of all of its Tax reports and Tax Returns relating to the
Business for all periods, except those periods for which returns are not yet
due.  No Tax Return concerning or relating to Seller or its operations has been
audited or examined by a government or taxing authority for any period after
December 31, 2000, nor is any audit or examination in process or pending, and
Seller has not been notified of any request for such an audit or other
examination.  To its Knowledge, Seller is not a party to any Action for
assessment or collection of Taxes.  No claim has been made by a taxing authority
in a

 

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jurisdiction where Tax Returns concerning or relating to the Business or the
Purchased Assets have not been filed such that it is or may be subject to
taxation by that jurisdiction.  Seller has not received any notice of any Tax
deficiency outstanding, proposed or assessed against or allocable to it in
respect of the Business, its assets or employees, and has not executed any
waiver of any statute of limitations on the assessment or collection of any Tax
or executed or filed with any Governmental Body any Contract now in effect
extending the period for assessment or collection of any Taxes against it in
respect of the Business, its assets or employees.  There are no Encumbrances for
Taxes upon, or pending or Threatened against, any Purchased Asset.  Seller is
not subject to any Tax allocation or sharing Contract relating to the Business. 
Seller (i) has not been a member of an Affiliated Group filing a consolidated
federal income Tax Return (other than a group the common parent of which was
Seller) or (ii) has no Liability for the Taxes of any Person under Treas. Reg.
Section 1.1502-6 or similar Law, as a transferee or successor, by Contract, or
otherwise.

 

6.10        Title to Purchased Assets.

 

Seller has good, marketable, and indefeasible title to all of the Purchased
Assets, in each case free and clear of all Encumbrances.  Upon and following the
Closing, Buyer will have good, marketable, and indefeasible title to all of the
Purchased Assets, in each case free and clear of all Encumbrances.  The
Purchased Assets constitute all the assets used in the operation of the business
since January 31, 2005 (other than inventory sold and accounts receivable in the
Ordinary Course of Business).

 

6.11        Intellectual Property.

 

(A)           WITH RESPECT TO EACH TRADE SECRET CONSTITUTING PURCHASED ASSETS,
THE DOCUMENTATION PROVIDED TO BUYER RELATING TO SUCH TRADE SECRET IS CURRENT,
ACCURATE, AND SUFFICIENT IN DETAIL AND CONTENT TO IDENTIFY AND EXPLAIN IT AND TO
ALLOW ITS FULL AND PROPER USE BY BUYER WITHOUT RELIANCE ON ANY INDIVIDUAL’S
KNOWLEDGE OR MEMORY.  SELLER HAS TAKEN ALL REASONABLE PRECAUTIONS TO PROTECT
SUCH TRADE SECRET’S SECRECY, CONFIDENTIALITY, AND VALUE.  NO SUCH TRADE SECRET
IS PART OF THE PUBLIC KNOWLEDGE OR LITERATURE OR, TO SELLER’S KNOWLEDGE, HAS
BEEN USED, DIVULGED, OR APPROPRIATED EITHER FOR THE BENEFIT OF ANY THIRD PERSON
OR THE DETRIMENT OF THE BUSINESS.  NO SUCH TRADE SECRET REQUIRED IS SUBJECT TO
ANY ADVERSE CLAIM NOR HAS ANY ADVERSE CLAIM BEEN THREATENED WITH RESPECT TO ANY
SUCH TRADE SECRET AND THERE IS NO BASIS THEREFOR.

 

(B)           SELLER OWNS OR HAS THE RIGHT TO USE PURSUANT TO AN ENFORCEABLE
CONTRACT ALL INTELLECTUAL PROPERTY NECESSARY OR DESIRABLE TO OPERATE THE
BUSINESS.  EACH ITEM OF INTELLECTUAL PROPERTY USED BY SELLER IN THE OPERATION OF
THE BUSINESS IMMEDIATELY PRIOR TO THE CLOSING WILL BE OWNED OR AVAILABLE FOR USE
BY BUYER ON IDENTICAL TERMS AND CONDITIONS IMMEDIATELY SUBSEQUENT TO THE
CLOSING.  SELLER HAS TAKEN ALL NECESSARY AND DESIRABLE ACTION TO MAINTAIN AND
PROTECT THE OWNERSHIP, CONFIDENTIALITY AND VALUE OF EACH ITEM OF INTELLECTUAL
PROPERTY THAT IT OWNS OR USES.

 

(C)           SELLER HAS DELIVERED TO BUYER CORRECT AND COMPLETE COPIES OF ALL
WRITTEN DOCUMENTATION EVIDENCING OWNERSHIP AND PROSECUTION (IF APPLICABLE) OF
EACH ITEM OF

 

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INTELLECTUAL PROPERTY USED BY SELLER IN THE OPERATION OF THE BUSINESS.  WITH
RESPECT TO EACH SUCH ITEM OF INTELLECTUAL PROPERTY:

 

(I)            SELLER POSSESSES ALL RIGHT, TITLE, AND INTEREST IN AND TO THE
ITEM, FREE AND CLEAR OF ANY ENCUMBRANCE;

 

(II)           THE ITEM IS NOT SUBJECT TO ANY OUTSTANDING ORDER;

 

(III)          NO ACTION IS PENDING OR THREATENED (AND THERE IS NO BASIS
THEREFOR) WHICH CHALLENGES THE ENFORCEABILITY, USE, OR OWNERSHIP OF THE ITEM;
AND

 

(IV)          SELLER HAS NEVER AGREED TO INDEMNIFY ANY PERSON FOR OR AGAINST ANY
INTERFERENCE, INFRINGEMENT, MISAPPROPRIATION, OR OTHER CONFLICT WITH RESPECT TO
THE ITEM.

 

(D)           IN RESPECT OF THE BUSINESS, SELLER HAS NOT INTERFERED WITH,
INFRINGED UPON, MISAPPROPRIATED, OR OTHERWISE COME INTO CONFLICT WITH ANY OTHER
PERSON’S INTELLECTUAL PROPERTY, AND SELLER HAS NEVER RECEIVED ANY NOTICE
ALLEGING ANY SUCH INTERFERENCE, INFRINGEMENT, MISAPPROPRIATION, VIOLATION OR
CONFLICT (INCLUDING ANY CLAIM THAT SELLER MUST LICENSE OR REFRAIN FROM USING ANY
OTHER PERSON’S INTELLECTUAL PROPERTY).  NO THIRD PERSON HAS ANY INTELLECTUAL
PROPERTY THAT INTERFERES OR WOULD BE LIKELY TO INTERFERE WITH BUYER’S USE OF ANY
OF ITS INTELLECTUAL PROPERTY.  BUYER’S USE OF SUCH INTELLECTUAL PROPERTY IN THE
SAME MANNER AS USED BY SELLER WILL NOT INTERFERE WITH, INFRINGE UPON,
MISAPPROPRIATE, OR OTHERWISE COME INTO CONFLICT WITH, ANY INTELLECTUAL PROPERTY
RIGHTS OF ANY OTHER PERSON AS A RESULT OF THE CONTINUED OPERATION OF THE
BUSINESS AS CURRENTLY CONDUCTED AND AS CURRENTLY PROPOSED TO BE CONDUCTED.  TO
SELLER’S KNOWLEDGE, NO OTHER PERSON HAS INTERFERED WITH, INFRINGED UPON,
MISAPPROPRIATED, OR OTHERWISE COME INTO CONFLICT WITH THE INTELLECTUAL PROPERTY
USED IN THE OPERATION OF THE BUSINESS.

 

(E)           NO FORMER AND CURRENT EMPLOYEES ENGAGED IN THE BUSINESS HAVE
EXECUTED WRITTEN CONTRACTS WITH SELLER THAT ASSIGN TO SELLER ALL RIGHTS TO ANY
INVENTIONS, IMPROVEMENTS, DISCOVERIES, OR INFORMATION RELATING TO THE BUSINESS. 
NO EMPLOYEE ENGAGED IN THE BUSINESS HAS ENTERED INTO ANY CONTRACT THAT RESTRICTS
OR LIMITS IN ANY WAY THE SCOPE OR TYPE OF WORK IN WHICH THE EMPLOYEE MAY BE
ENGAGED OR REQUIRES THE EMPLOYEE TO TRANSFER, ASSIGN, OR DISCLOSE INFORMATION
CONCERNING HIS WORK OR HER WORK TO ANY PERSON OTHER THAN SELLER.

 

6.12        Contracts.

 

Each material Contract (as amended to date) related to the Business, including
the Contracts with AEO and Target, is listed in Schedule 6.12 (the “Material
Contracts”).  Seller has delivered to Buyer a correct and complete copy of each
such contract.  With respect to each such Material Contract:

 

(I)            THE CONTRACT IS ENFORCEABLE;

 

(II)           THE CONTRACT WILL CONTINUE TO BE ENFORCEABLE ON IDENTICAL TERMS
FOLLOWING THE CONSUMMATION OF THE TRANSACTIONS;

 

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(III)          SELLER IS, AND TO SELLER’S KNOWLEDGE THE OTHER PARTIES TO SUCH
CONTRACTS ARE, NOT IN BREACH OF SUCH CONTRACT, AND NO EVENT HAS OCCURRED THAT,
WITH NOTICE OR LAPSE OF TIME, WOULD CONSTITUTE A BREACH UNDER THE CONTRACT; AND

 

(IV)          NO PARTY TO THE CONTRACT HAS REPUDIATED ANY PROVISION OF THE
CONTRACT.

 

6.13        Purchase Commitments.

 

As of March 21, 2006, the aggregate of all accepted and unfulfilled orders for
the sale of merchandise relating to the Business entered into by Seller is at
least $17,991,242.13, all of which orders and commitments were made in the
Ordinary Course of Business and are listed on Schedule 6.13 and, to Seller’s
Knowledge, all of such orders will be fulfilled within the time specified by
such order.  There are no claims against Seller to return merchandise relating
to the Business by reason of alleged overshipments, defective merchandise or
otherwise, or of merchandise in the hands of customers under an understanding
that such merchandise would be returnable.  No ordinary purchase or outstanding
lease commitment of Seller relating to the Business presently is in excess of
the normal, ordinary and usual requirements of the Business or was made at any
price in excess of the now current market price or contains terms and conditions
more onerous than those usual and customary in the Business.

 

6.14        Litigation.

 

Schedule 6.14 sets forth each instance in which Seller (a) is subject to any
outstanding Order or (b) is a party, the subject of, or, to Seller’s Knowledge,
is Threatened to be made a party to or the subject of any Action.  No Action
required to be set forth in Schedule 6.14 questions the Enforceability of this
Agreement or the Transactions, or could result in any Material Adverse Change
with respect to Seller.

 

6.15        Product Warranty.

 

Each product manufactured, sold, leased, or delivered by Seller for the Business
has been in conformity with all applicable Law, Contracts, and all express and
implied warranties, and neither Seller nor the Business has any Liability (and
there is no Basis for any present or future Action against Seller or the
Business giving rise to any Liability) for replacement or repair thereof or
other damages in connection therewith.  No product designed, manufactured, sold,
leased, or delivered by Seller for the Business is subject to any guaranty,
warranty, or other indemnity or similar Liability beyond the applicable standard
terms and conditions of sale or lease.  Schedule 6.15 includes copies of the
standard terms and conditions of sale or lease for products and services offered
by the Business.

 

6.16        Employees.

 

(A)   SCHEDULE 6.16(A) CONTAINS A COMPLETE AND ACCURATE LIST OF THE FOLLOWING
INFORMATION FOR EACH EMPLOYEE, DIRECTOR, INDEPENDENT CONTRACTOR, CONSULTANT AND
AGENT OF SELLER PRIMARILY ENGAGED IN THE BUSINESS, INCLUDING EACH EMPLOYEE ON
LEAVE OF ABSENCE OR LAYOFF STATUS: EMPLOYER; NAME; JOB TITLE; DATE OF HIRING OR
ENGAGEMENT; DATE OF COMMENCEMENT OF EMPLOYMENT OR ENGAGEMENT; CURRENT
COMPENSATION PAID OR PAYABLE

 

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AND ANY CHANGE IN COMPENSATION SINCE JANUARY 1, 2005; SICK AND VACATION LEAVE
THAT IS ACCRUED BUT UNUSED; AND SERVICE CREDITED FOR PURPOSES OF VESTING AND
ELIGIBILITY TO PARTICIPATE UNDER ANY EMPLOYEE BENEFIT PLAN, OR ANY OTHER
EMPLOYEE OR DIRECTOR BENEFIT PLAN.

 

(B)   SCHEDULE 6.16(B) STATES THE NUMBER OF EMPLOYEES ENGAGED IN THE BUSINESS
TERMINATED BY SELLER SINCE SEPTEMBER 1, 2005, AND CONTAINS A COMPLETE AND
ACCURATE LIST OF THE FOLLOWING INFORMATION FOR EACH EMPLOYEE ENGAGED IN THE
BUSINESS WHO HAS BEEN TERMINATED OR LAID OFF, OR WHOSE HOURS OF WORK HAVE BEEN
REDUCED BY MORE THAN FIFTY PERCENT (50%) IN THE SIX (6) MONTHS PRIOR TO THE
EXECUTION DATE: (I) THE DATE OF SUCH TERMINATION, LAYOFF OR REDUCTION IN HOURS;
(II) THE REASON FOR SUCH TERMINATION, LAYOFF OR REDUCTION IN HOURS; AND (III)
THE LOCATION TO WHICH THE EMPLOYEE WAS ASSIGNED.

 

(C)   SELLER HAS NOT VIOLATED, AND THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED HEREBY WILL NOT VIOLATE, THE WORKER ADJUSTMENT AND RETRAINING
NOTIFICATION ACT (THE “WARN ACT”) OR ANY SIMILAR STATE OR LOCAL LAW.

 

(D)   TO SELLER’S KNOWLEDGE, NO EMPLOYEE, CONSULTANT, OR CONTRACTOR ENGAGED IN
THE BUSINESS IS BOUND BY ANY CONTRACT THAT PURPORTS TO LIMIT THE ABILITY OF SUCH
EMPLOYEE, CONSULTANT, OR CONTRACTOR (I) TO ENGAGE IN OR CONTINUE OR PERFORM ANY
CONDUCT, ACTIVITY, DUTIES OR PRACTICE RELATING TO THE BUSINESS OR (II) TO ASSIGN
TO SELLER OR TO ANY OTHER PERSON ANY RIGHTS TO ANY INVENTION, IMPROVEMENT, OR
DISCOVERY.  NO FORMER OR CURRENT EMPLOYEE OF THE BUSINESS IS A PARTY TO, OR IS
OTHERWISE BOUND BY, ANY CONTRACT THAT IN ANY WAY ADVERSELY AFFECTED, AFFECTS, OR
WILL AFFECT THE ABILITY OF BUYER TO CONDUCT THE BUSINESS AS HERETOFORE CARRIED
ON BY SELLER.

 

(E)   SELLER IS NOT A PARTY TO OR BOUND BY ANY COLLECTIVE BARGAINING CONTRACT
RELATING TO THE BUSINESS, NOR HAS IT EXPERIENCED ANY STRIKES, GRIEVANCES, CLAIMS
OF UNFAIR LABOR PRACTICES, OR OTHER COLLECTIVE BARGAINING DISPUTES RELATING TO
THE BUSINESS.  SELLER HAS NOT COMMITTED ANY UNFAIR LABOR PRACTICE (AS DETERMINED
UNDER ANY LAW) RELATING TO THE BUSINESS.  SELLER HAS NO KNOWLEDGE OF ANY
ORGANIZATIONAL EFFORT CURRENTLY BEING MADE OR THREATENED BY OR ON BEHALF OF ANY
LABOR UNION WITH RESPECT TO ANY PERSONS EMPLOYED FOR THE BUSINESS.

 

(F)    THE BUSINESS IS IN COMPLIANCE IN ALL MATERIAL RESPECTS WITH ALL CURRENTLY
APPLICABLE LAW RESPECTING TERMS AND CONDITIONS OF EMPLOYMENT INCLUDING, WITHOUT
LIMITATION, APPLICANT AND EMPLOYEE BACKGROUND CHECKING, IMMIGRATION LAWS,
DISCRIMINATION LAWS, VERIFICATION OF EMPLOYMENT ELIGIBILITY, EMPLOYEE LEAVE
LAWS, CLASSIFICATION OF WORKERS AS EMPLOYEES AND INDEPENDENT CONTRACTORS, WAGE
AND HOUR LAWS, AND OCCUPATIONAL SAFETY AND HEALTH LAWS.  THERE ARE NO ACTIONS
PENDING OR, TO THE SELLER’S KNOWLEDGE, REASONABLY EXPECTED OR THREATENED,
BETWEEN THE BUSINESS, ON THE ONE HAND, AND ANY OR ALL OF ITS CURRENT OR FORMER
EMPLOYEES, ON THE OTHER HAND, INCLUDING, BUT NOT LIMITED TO, ANY CLAIMS FOR
ACTUAL OR ALLEGED HARASSMENT OR DISCRIMINATION BASED ON RACE, NATIONAL ORIGIN,
AGE, SEX, SEXUAL ORIENTATION, RELIGION, DISABILITY, OR SIMILAR TORTIOUS CONDUCT,
BREACH OF CONTRACT, WRONGFUL TERMINATION, DEFAMATION, INTENTIONAL OR NEGLIGENT
INFLICTION OF EMOTIONAL DISTRESS, INTERFERENCE WITH CONTRACT OR INTERFERENCE
WITH ACTUAL OR PROSPECTIVE ECONOMIC ADVANTAGE.  THERE ARE NO CLAIMS PENDING, OR,
TO THE SELLER’S

 

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KNOWLEDGE, REASONABLY EXPECTED OR THREATENED, AGAINST THE BUSINESS UNDER ANY
WORKERS’ COMPENSATION OR LONG TERM DISABILITY PLAN OR POLICY.

 

6.17        Employee Benefits.

 

Schedule 6.17 lists each “employee benefit plan” within the meaning of Section
3(3) of ERISA, “multiemployer plan” within the meaning of Section 3(37) of
ERISA, non-qualified deferred compensation plan, qualified defined contribution
retirement plan, qualified defined benefit retirement plan, severance or retiree
welfare plan or program or other material fringe benefit plan or program that
Seller or any ERISA Affiliate sponsors or maintains for the Business or to which
Seller or any ERISA Affiliate contributes (or has an obligation to contribute)
in respect of the Business (the “Employee Benefit Plans”).  With respect to any
employee benefit plan, within the meaning of Section 3(3) of ERISA, which is
sponsored, maintained or contributed to, or has been sponsored, maintained or
contributed to, within six years prior to the Closing Date, by Seller or any
ERISA Affiliate, (a) no withdrawal liability, within the meaning of Section 4201
of ERISA, has been incurred, (b) no Liability to the PBGC has been incurred by
Seller or any ERISA Affiliate, (c) no accumulated funding deficiency, whether or
not waived, within the meaning of Section 302 of ERISA or Section 412 of the
Code has been incurred, and (d) all contributions (including installments) to
such plan required by Section 302 of ERISA and Section 412 of the Code and all
contributions required to be made to any “multiemployer plan” within the meaning
of Section 3(37) of ERISA have been timely made.  With respect to any kind of
employee benefit plan for the Business, such plan has been funded and maintained
in compliance with all Laws applicable thereto and the requirements of such
plan’s governing documents.  None of the Purchased Assets are subject to a lien
or security interest imposed by Section 401(a)(29) or 412(n) of the Code or by
ERISA and no event has occurred and no circumstance exists under which could
result in the imposition of such a lien or security interest on any of the
Purchased Assets.

 

6.18        Environmental, Health, and Safety Matters.

 

Except as set forth in Schedule 6.18, (a) Seller has complied and is in
compliance with all Environmental, Health, and Safety Requirements in connection
with owning, using, maintaining, or operating the Business or any assets related
thereto, (b) each location at which Seller operates or has operated the Business
is in compliance with all Environmental, Health, and Safety Requirements, and
(c) there are no pending, or any Threatened, allegations by any Person that any
of the assets or properties the Business are not, or have not been, conducted in
compliance with all Environmental, Health, and Safety Requirements.

 

6.19        Customers and Suppliers.

 

Schedule 6.19 lists the Business’s two (2) largest customers during the 12 month
period ending on the date hereof.  Except as set forth in Schedule 6.19, Seller
has not received notice of termination or an intention to terminate the
relationship with the Business from AEO, Target or any other customer.

 

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6.20        Permits.

 

Seller possesses all Permits required to be obtained for operation of the
Business.  Schedule 6.20 sets forth a list of all such Permits.  Except as set
forth in Schedule 6.20, with respect to each such Permit:

 

(A)           IT IS VALID, SUBSISTING AND IN FULL FORCE AND EFFECT AND IS
TRANSFERABLE TO BUYER WITHOUT CONSENT OF ANY PERSON;

 

(B)   THERE ARE NO VIOLATIONS OF SUCH PERMIT THAT COULD REASONABLY BE EXPECTED
TO RESULT IN A TERMINATION OF SUCH PERMIT;

 

(C)   SELLER HAS NOT RECEIVED NOTICE THAT SUCH PERMIT WILL NOT BE RENEWED; AND

 

(D)   THE TRANSACTIONS WILL NOT ADVERSELY AFFECT THE VALIDITY OF SUCH PERMIT OR
CAUSE A CANCELLATION OF OR OTHERWISE ADVERSELY AFFECT SUCH PERMIT.

 

6.21        Solvency.

 

(A)           SELLER IS NOT NOW INSOLVENT, NOR WILL SELLER BE RENDERED INSOLVENT
BY ANY OF THE TRANSACTIONS.  AS USED HEREIN, “INSOLVENT” MEANS THAT THE SUM OF
THE LIABILITIES OF SELLER EXCEEDS THE FAIR PRESENT VALUE OF ITS ASSETS.

 

(B)           IMMEDIATELY AFTER GIVING EFFECT TO THE CONSUMMATION OF THE
TRANSACTIONS:

 

(I)            SELLER WILL BE ABLE TO PAY ITS LIABILITIES AS THEY BECOME DUE IN
THE ORDINARY COURSE OF BUSINESS OF SELLER;

 

(II)           SELLER WILL NOT HAVE UNREASONABLY SMALL CAPITAL WITH WHICH TO
CONDUCT ITS PRESENT OR PROPOSED BUSINESS;

 

(III)          SELLER WILL HAVE ASSETS (CALCULATED AT FAIR MARKET VALUE) THAT
EXCEED ITS LIABILITIES; AND

 

(IV)          TAKING INTO ACCOUNT ALL PENDING AND THREATENED ACTIONS, FINAL
JUDGMENTS AGAINST SELLER IN ACTIONS FOR MONEY DAMAGES ARE NOT REASONABLY
ANTICIPATED TO BE RENDERED AT A TIME WHEN, OR IN AMOUNTS SUCH THAT, SELLER WILL
BE UNABLE TO SATISFY ANY SUCH JUDGMENTS PROMPTLY IN ACCORDANCE WITH THEIR TERMS
(TAKING INTO ACCOUNT THE MAXIMUM PROBABLE AMOUNT OF SUCH JUDGMENTS IN ANY SUCH
ACTIONS AND THE EARLIEST REASONABLE TIME AT WHICH SUCH JUDGMENTS MIGHT BE
RENDERED) AS WELL AS ALL OTHER OBLIGATIONS OF SELLER.

 

6.22        Accuracy of Information Furnished.

 

No representation, statement, or information contained in this Agreement
(including the Schedules) or any Contract or document executed in connection
herewith or delivered pursuant hereto or thereto or made available or furnished
to Buyer or its representatives by Seller contains or will contain any untrue
statement of a material fact or omits or will omit any material fact

 

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necessary to make the information contained therein not misleading.  Seller has
provided Buyer with correct and complete copies of all documents listed or
described in the Schedules.  Notwithstanding the foregoing, (a) except as
otherwise provided in Section 7.6, Buyer may only rely on the most recent
version of any information Seller furnishes to Buyer that supersedes previous
information provided to Buyer, provided that Seller indicates in writing that
such information supersedes previous information provided (specifying which
information is superseded) and (b) subject to the next sentence, Seller will not
be Liable with respect to financial projections or estimates of the Business’s
future performance.  All projections and estimates that have been provided to
Buyer at the time of creation were reasonably made in good faith based on
reasonable assumptions, given the circumstances at the time such assumptions
were made.

 

6.23        CERTAIN BUSINESS PRACTICES.

 

Neither Seller nor Innovo, nor, to the Knowledge of Seller, any director,
officer, agent or employee of Seller or Innovo has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.

 

6.24        PROXY STATEMENT.

 

None of the information supplied or to be supplied by the Company for inclusion
or incorporation by reference in the proxy statement prepared by Seller in
connection with obtaining stockholder approval of the transactions contemplated
hereby (the “Proxy Statement”) will, at the date it is first mailed to the
Seller’s stockholders and at the time of the Seller stockholder meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation is made by the Seller with respect to
statements made or incorporated by reference therein based on information
supplied in writing by Buyer specifically for inclusion or incorporation by
reference therein.  The Proxy Statement will comply as to form in all material
respects with the requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.

 

6.25        FAIRNESS OPINION.

 

Seller has received an acceptable fairness opinion respecting the adequacy of
consideration received by Seller from the Transactions.

 

6.26        Representations Complete.

 

Except as and to the extent set forth in this Agreement, Seller makes no
representations or warranties whatsoever (including any implied or express
warranty of merchantability, fitness for a particular purpose, or conformity to
models or samples of materials) to Buyer and Seller hereby disclaims all
Liability and responsibility for any representation, warranty, statement, or

 

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information not included herein that was made, communicated, or furnished
(orally or in writing) to Buyer or its representatives (including any opinion,
information, projection, or advice that may have been or may be provided to
Buyer by any director, officer, employee, agent, consultant, or representative
of Seller).

 

ARTICLE 7.
PRE-CLOSING COVENANTS

 

The Parties agree as follows with respect to the period between the Execution
Date and the earlier of the Closing and the Termination Date:

 

7.1          General.

 

Each Party will use its Best Efforts to take all actions and do all things
necessary, proper, or advisable to consummate, make effective, and comply with
all of the terms of this Agreement and the Transactions applicable to it
(including satisfaction, but not waiver, of the Closing conditions for which it
is responsible or otherwise in control, as set forth in ARTICLE 9).

 

7.2          Notices and Consents.

 

(A)           SELLER WILL GIVE ANY NOTICES TO THIRD PARTIES, AND WILL USE ITS
RESPECTIVE BEST EFFORTS TO OBTAIN ANY THIRD PARTY CONSENTS LISTED ON SCHEDULE
6.3, OR THAT BUYER REASONABLY MAY OTHERWISE REQUEST IN CONNECTION WITH THE
MATTERS REFERRED TO IN SECTION 6.3.  SELLER WILL GIVE ANY NOTICES TO, MAKE ANY
FILINGS WITH, AND USE ITS BEST EFFORTS TO OBTAIN ANY CONSENTS OF GOVERNMENTAL
BODIES, IF ANY, REQUIRED OR REASONABLY DEEMED ADVISABLE BY BUYER PURSUANT TO ANY
APPLICABLE LAW IN CONNECTION WITH THE TRANSACTIONS INCLUDING IN CONNECTION WITH
THE MATTERS REFERRED TO IN SECTION 6.3.

 

(A)           BUYER WILL GIVE ANY NOTICES TO THIRD PARTIES, AND WILL USE ITS
BEST EFFORTS TO OBTAIN ANY THIRD PARTY CONSENTS LISTED ON SCHEDULE 5.3, THAT
SELLER REASONABLY MAY OTHERWISE REQUEST IN CONNECTION WITH THE MATTERS REFERRED
TO IN SECTION 5.3.  BUYER WILL GIVE ANY NOTICES TO, MAKE ANY FILINGS WITH, AND
USE ITS BEST EFFORTS TO OBTAIN ANY CONSENTS OF GOVERNMENTAL BODIES, IF ANY,
REQUIRED OR REASONABLY DEEMED ADVISABLE BY SELLER PURSUANT TO ANY APPLICABLE LAW
IN CONNECTION WITH THE TRANSACTIONS INCLUDING IN CONNECTION WITH THE MATTERS
REFERRED TO IN SECTION 5.3.

 

(B)           NOTHING IN THIS SECTION 7.2 WILL REQUIRE THAT (I) BUYER OR ITS
AFFILIATES DIVEST, SELL, OR HOLD SEPARATELY ANY OF ITS ASSETS OR PROPERTIES, OR
(II) BUYER, ITS AFFILIATES, OR SELLER (THE DETERMINATION WITH RESPECT TO WHICH
BUYER WILL MAKE) TAKE ANY ACTIONS THAT COULD AFFECT THE NORMAL AND REGULAR
OPERATIONS OF BUYER, ITS AFFILIATES, OR THE OPERATION OF THE BUSINESS AFTER THE
CLOSING.

 

7.3          Operation of Business.

 

Seller shall not engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business of the Business or engage in
any practice, take any

 

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action, or enter into any transaction of the sort described in Section 6.6. 
Subject to compliance with applicable Law, Seller will confer on a regular and
frequent basis with one or more representatives of Buyer to report on
operational matters and the general status of the Business and its operations
and finances and will promptly provide to Buyer or its representatives copies of
all filings made with any Governmental Body during such period on behalf of the
Business.

 

7.4          Preservation of Business.

 

Seller will use its Best Efforts to keep the Business and its properties,
including without limitation the Trade Secrets and Intellectual Property
included in the Purchased Assets, substantially intact, including its present
operations, working conditions, and relationships with lessors, licensors,
suppliers, customers, and employees.

 

7.5          Full Access.

 

Seller will permit representatives of Buyer (including financing providers) to
have full access at all reasonable times, and in a manner so as not to interfere
with the normal business operations of the Business, to all premises,
properties, personnel, books, records, Contracts, and documents pertaining to
the Business and will furnish copies of all such books, records, Contracts and
documents and all financial, operating and other data, and other information as
Buyer may reasonably request; provided, however, that no investigation pursuant
to this Section 7.5 will affect any representations or warranties made herein or
the conditions to the Parties’ obligations to consummate the Transactions.

 

7.6          Notice of Developments.

 

Seller will give prompt written notice to Buyer of any development occurring
after the Execution Date which causes or reasonably could be expected to cause a
Breach of any of the representations and warranties in ARTICLE 6.  Buyer will
give prompt written notice to Seller of any development occurring after the
Execution Date which causes or reasonably could be expected to cause a Breach of
any of the representations and warranties in ARTICLE 5.  No disclosure by any
Party pursuant to this Section 7.6 or otherwise will be deemed to amend or
supplement the Schedules or to prevent or cure any misrepresentation or Breach
of any representation, warranty, or covenant.

 

7.7          Exclusivity.

 

Neither Seller nor Innovo nor any of their respective Affiliates, officers,
directors, employees, agents or representatives, will (a) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any Equity Interests of Seller or Innovo or any portion of
the assets used in the Business (including any acquisition structured as a
merger, consolidation, or share exchange) or (b) participate in any discussions
or negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing.  Seller will notify Buyer immediately
if any Person makes any proposal, offer, inquiry, or contact with respect to any
of the foregoing and the terms of any such proposal, offer, inquiry, or contact.

 

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7.8          Confidentiality; Publicity.

 

Except as may be required by Law, stock exchange or as otherwise expressly
contemplated herein, no Party or their respective Affiliates, employees, agents,
and representatives will disclose to any third party the existence of this
Agreement, the subject matter or terms hereof or any Confidential Information
concerning the business or affairs of any other Party (including, in respect of
Seller, the Business) that it may have acquired from such Party in the course of
pursuing the Transactions without the prior written consent of Seller or Buyer,
as the case may be; provided, however, any Party may disclose any such
Confidential Information as follows: (a) to such Party’s Affiliates and its or
its Affiliates’ employees, lenders, counsel, or accountants, the actions for
which the applicable Party will be responsible; (b) to comply with any
applicable Law or Order, provided that prior to making any such disclosure the
Party making the disclosure notifies the other Party of any Action of which it
is aware which may result in disclosure and uses its Best Efforts to limit or
prevent such disclosure; (c) to the extent that the Confidential Information is
or becomes generally available to the public through no fault of the Party or
its Affiliates making such disclosure; (d) to the extent that the same
information is in the possession (on a non-confidential basis) of the Party
making such disclosure prior to receipt of such Confidential Information; (e) to
the extent that the Party that received the Confidential Information
independently develops the same information without in any way relying on any
Confidential Information; or (f) to the extent that the same information becomes
available to the Party making such disclosure on a nonconfidential basis from a
source other than a Party or its Affiliates, which source, to the disclosing
Party’s Knowledge, is not prohibited from disclosing such information by a
legal, Contractual, or fiduciary obligation to the other Party.  If the
Transactions are not consummated, each Party will return or destroy as much of
the Confidential Information concerning the other Party as the Parties that have
provided such information may reasonably request.  Whether or not the Closing
takes place, Seller waives any cause of Action arising out of the access of
Buyer or its representatives to any Confidential Information of Seller or the
Business.  Notwithstanding the foregoing, Buyer may make such public disclosure
of the existence of this Agreement, the principal economic terms thereof, and
the status with respect to achieving the Closing as it desires; provided, that
Buyer will consult with Seller prior to releasing any such public disclosure so
that the Seller may notify its employees of the Transactions.  Seller will not
nor will it permit any of its Affiliates to, issue any press release or other
public announcement related to this Agreement or the Transactions without
Buyer’s prior written approval.  Following the Closing, Buyer may disclose any
Confidential Information regarding the Business as it deems appropriate.

 

7.9          Charges and Fees.

 

Seller will, prior to the Closing, take such steps as are necessary to ensure
that no sums are owed or payable by Buyer to any Person in the nature of a
transfer charge or processing fee with respect to any of the Purchased Assets.

 

ARTICLE 8.
ADDITIONAL COVENANTS

 

The Parties agree as follows:

 

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8.1          General.

 

In case at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, each Party will take such
further action (including executing and delivering such further instruments and
documents) as any other Party reasonably may request, all at the requesting
Party’s sole cost and expense (unless the requesting Party is entitled to
indemnification therefor under ARTICLE 11).  After the Closing, Buyer will be
entitled to possession of all documents, books, records, agreements, and
financial data of any sort relating to the Business.  Seller will, and will
cause its officers, directors, employees, agents and Affiliates to cooperate
with Buyer in the preparation of audited financial statements for the Business,
and shall be responsible for the direct costs associated with such audit.

 

8.2          Litigation Support.

 

So long as any Party actively is contesting or defending against any Action in
connection with (a) the Transactions or (b) any fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction on or prior to the Closing Date involving
the Business, each other Party will cooperate with such Party and such Party’s
counsel in the contest or defense, make available their personnel, and provide
such testimony and access to their books and records as will be necessary in
connection with the contest or defense, at the sole cost and expense of the
contesting or defending Party (unless the contesting or defending Party or one
of its Affiliates is entitled to indemnification therefor under ARTICLE 11).

 

8.3          Transition.

 

Neither Seller nor Innovo, nor any of their respective Affiliates, directors,
officers, employees, agents or representatives, will take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of the Business from maintaining
at least as favorable business relationships with Buyer after the Closing as it
maintained with Seller prior to the Closing.  Seller will, and will cause its
Affiliates to, refer all customer, supplier, and other inquiries relating to the
Business to Buyer or an Affiliate thereof.

 

8.4          Confidentiality.

 

Seller will, and will cause its Affiliates, employees, agents and
representatives to, treat and hold as such all of the Confidential Information,
refrain from using any of the Confidential Information except in connection with
this Agreement, and deliver promptly to Buyer or destroy, at the request and
option of Buyer, all tangible embodiments (and all copies) of the Confidential
Information which are in Seller’s possession in each case, forever.  If Seller
is ever requested or required (by oral question or request for information or
documents in any Action) to disclose any Confidential Information, Seller will
notify Buyer promptly of the request or requirement so that Buyer may seek an
appropriate protective Order or waive compliance with this Section 8.4.  If, in
the absence of a protective Order or the receipt of a waiver hereunder, Seller,
on the written advice of counsel, is compelled to disclose any Confidential
Information to any Governmental Body, arbitrator, or mediator or else stand
Liable for contempt, then Seller may disclose the

 

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Confidential Information to the Governmental Body, arbitrator, or mediator;
provided, however; that Seller will use its Best Efforts to obtain, at the
request of Buyer, an Order or other assurance that confidential treatment will
be accorded to such portion of the Confidential Information required to be
disclosed as Buyer may designate.

 

8.5          Restrictive Covenants.

 

To assure that Buyer will realize the benefits of the Transactions, Seller
hereby agrees with Buyer that Seller shall not, and shall cause its Affiliates
to not:

 

(A)           FROM THE CLOSING DATE UNTIL FOUR (4) YEARS AFTER THE CLOSING DATE,
DIRECTLY OR INDIRECTLY, ALONE OR AS A PARTNER, JOINT VENTURER, OFFICER,
DIRECTOR, MEMBER, EMPLOYEE, CONSULTANT, AGENT, INDEPENDENT CONTRACTOR OR EQUITY
INTEREST HOLDER OF, OR LENDER TO, ANY PERSON OR BUSINESS, ENGAGE IN, INDUCE,
CANVASS, SOLICIT OR ACCEPT ANY BUSINESS OR COMMERCIAL ARRANGEMENTS WITH AEO,
TARGET OR ANY OF THEIR RESPECTIVE AFFILIATES.

 

(B)           FROM THE CLOSING DATE UNTIL TWO (2) YEARS AFTER THE CLOSING DATE,
DIRECTLY OR INDIRECTLY EMPLOY OR KNOWINGLY PERMIT ANY AFFILIATE OF SELLER TO
EMPLOY OR SOLICIT FOR EMPLOYMENT OR OTHER SIMILAR RELATIONSHIP WITH SELLER, ANY
EMPLOYEE OR INDEPENDENT CONTRACTOR OF BUYER OR ANY OF ITS AFFILIATES IF SUCH
PERSON HAD BEEN EMPLOYED BY SELLER IN CONNECTION WITH THE BUSINESS (INCLUDING
EMPLOYED AS AN INDEPENDENT CONTRACTOR) ON THE EFFECTIVE DATE, EXCEPT FOR ANY
EMPLOYEES OR INDEPENDENT CONTRACTORS OF THE BUSINESS AS OF SUCH DATE THAT WERE
NOT HIRED BY BUYER AT ANY TIME DURING SUCH TWO (2) YEAR PERIOD.

 

The foregoing agreements in clauses (a) and (b) are hereinafter referred to as
the “Restrictive Covenants”.  Notwithstanding the foregoing, the beneficial
ownership of less than 3% of the Equity Interests of any Person having a class
of Equity Interest actively traded on a national securities exchange or
over-the-counter market will not be deemed, in and of itself, to Breach the
prohibitions of this Section 8.5.  Seller agrees and acknowledges that the
restrictions in this Section 8.5 are reasonable in scope and duration and are
necessary to protect Buyer after the Closing. Seller acknowledges that if it or
any of its Affiliates were to compete with the Business following the Closing,
great harm would come to the Buyers and the Business, thereby destroying any
value associated with the purchase of the Purchased Assets and the goodwill of
the Business.  The Restrictive Covenants set forth herein have been separately
bargained for to protect the Business, including goodwill, being acquired by the
Buyer hereunder and to ensure that the Buyers shall have the full benefit of the
value thereof.  Seller recognizes and acknowledges that the business and markets
of the Business are international in scope, and that the Buyer is investing
substantial sums in purchasing the Purchased Assets and in consideration for the
Restrictive Covenants contained in this Agreement, that such covenants are
necessary in order to protect and maintain the legitimate business and
investment interests of the Buyer and are reasonable in all respects, and that
the Buyer would not consummate the transactions contemplated hereby but for such
agreements.  Seller hereby waives any and all right to contest the validity of
the Restrictive Covenants on the ground of the breadth of their geographic or
product coverage or the length of their term.  Seller acknowledges and agrees
that an adequate portion of the Purchase Price has been allocated to Restrictive
Covenants and Seller hereby waives any right to assert inadequacy of
consideration as a defense to enforcement of the Restrictive Covenants should
such enforcement ever become necessary.  If Seller or any Affiliate

 

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thereof is found to have Breached this Section 8.5, then, in addition to all
other remedies that may be available to the applicable Person, an amount of time
equal to the period Seller or such Affiliate was found to be in Breach of this
Section 8.5 will be added to the time periods contemplated by this Section 8.5. 
If any provision of this Section 8.5, as applied to any Party or to any
circumstance, is adjudged by a Governmental Body, arbitrator, or mediator not to
be enforceable in accordance with its terms, the same will in no way affect any
other circumstance or the enforceability of the remainder of this Agreement.  If
any such provision, or any part thereof, is held not to be enforceable in
accordance with its terms because of the duration of such provision, the area
covered thereby, or the scope of the activities covered, the Parties agree that
the Governmental Body, arbitrator, or mediator making such determination will
have the power to reduce the duration, area, and/or scope of activities of such
provision, and/or to delete specific words or phrases, and in its reduced form,
such provision will then be enforceable in accordance with its terms and will be
enforced.  The Parties agree and acknowledge that the Breach of this Section 8.5
will cause irreparable damage to Buyer and the Business, and upon Breach of any
provision of this Section 8.5, Buyer will be entitled to injunctive relief,
specific performance, or other equitable relief without bond or other security;
provided, however, that the foregoing remedies will in no way limit any other
remedies which Buyer may have.

 

8.6          Use of Names.

 

From and after the Closing Date Buyer and its Affiliates will have the
royalty-free right to refer to the Business as formerly “the Blue Concepts
Division of Azteca Production International” “and to use such reference in
advertising or in the description or name of any service or product from time to
time purchased, processed, manufactured, or sold by Buyer and its Affiliates in
continuation of the Business.

 

8.7          Taxes.

 

(A)           SELLER WILL BE LIABLE FOR AND WILL PAY ALL TAXES (WHETHER ASSESSED
OR UNASSESSED) APPLICABLE TO THE BUSINESS AND THE PURCHASED ASSETS, IN EACH CASE
ATTRIBUTABLE TO PERIODS (OR PORTIONS THEREOF) ENDING ON OR PRIOR TO THE CLOSING
DATE, INCLUDING, WITHOUT LIMITATION, ANY TAXES ARISING OUT OF THE CONSUMMATION
OF THE TRANSACTIONS CONTEMPLATED HEREBY.  BUYER WILL BE LIABLE FOR AND WILL PAY
ALL TAXES (WHETHER ASSESSED OR UNASSESSED) APPLICABLE TO THE BUSINESS AND THE
PURCHASED ASSETS, IN EACH CASE ATTRIBUTABLE TO PERIODS (OR PORTIONS THEREOF)
BEGINNING AFTER THE CLOSING DATE.  FOR PURPOSES OF THIS SECTION 8.7(A), ANY
PERIOD BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE WILL BE TREATED AS TWO
PARTIAL PERIODS, ONE ENDING ON THE CLOSING DATE AND THE OTHER BEGINNING AFTER
THE CLOSING DATE, EXCEPT THAT TAXES (SUCH AS PROPERTY TAXES) IMPOSED ON A
PERIODIC BASIS WILL BE ALLOCATED ON A DAILY BASIS.

 

(B)           FOR PURPOSES OF SECTION 8.7(A), ALL REAL PROPERTY TAXES, PERSONAL
PROPERTY TAXES AND SIMILAR AD VALOREM OBLIGATIONS LEVIED WITH RESPECT TO THE
PURCHASED ASSETS FOR A TAX PERIOD THAT INCLUDES (BUT DOES NOT END ON) THE
CLOSING DATE SHALL BE APPORTIONED BETWEEN THE SELLER AND THE BUYER BASED UPON
THE NUMBER OF DAYS OF SUCH PERIOD INCLUDED IN THE TAX PERIOD BEFORE (AND
INCLUDING) THE CLOSING DATE AND THE NUMBER OF DAYS OF SUCH TAX PERIOD AFTER THE
CLOSING DATE). SELLER, ON THE ONE HAND, AND BUYER, ON THE OTHER HAND, WILL
PROVIDE REIMBURSEMENT FOR ANY TAX PAID BY ONE PARTY ALL OR A PORTION OF WHICH IS
THE

 

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RESPONSIBILITY OF THE OTHER PARTY IN ACCORDANCE WITH THE TERMS OF THIS SECTION
8.7(B).  WITHIN A REASONABLE TIME PRIOR TO THE PAYMENT OF ANY SAID TAX, THE
PARTY PAYING SUCH TAX WILL GIVE NOTICE TO THE OTHER PARTY OF THE TAX PAYABLE AND
THE PORTION WHICH IS THE LIABILITY OF EACH PARTY, ALTHOUGH FAILURE TO DO SO WILL
NOT RELIEVE THE OTHER PARTY FROM ITS LIABILITY HEREUNDER.

 

(C)           NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, ANY SALES TAX,
USE TAX, REAL PROPERTY TRANSFER OR GAINS TAX, DOCUMENTARY STAMP TAX, OR SIMILAR
TAX ATTRIBUTABLE TO THE SALE OR TRANSFER OF THE PURCHASED ASSETS WILL BE PAID BY
SELLER.  BUYER AGREES TO TIMELY SIGN AND DELIVER SUCH CERTIFICATES OR FORMS AS
MAY BE NECESSARY OR APPROPRIATE TO ESTABLISH AN EXEMPTION FROM (OR OTHERWISE
REDUCE), OR MAKE A REPORT WITH RESPECT TO, SUCH TAXES.

 

(D)           ANY PAYMENTS MADE PURSUANT TO THIS SECTION 8.7 OR ARTICLE 11 WILL
BE TREATED BY BUYER AND SELLER AS AN ADJUSTMENT TO THE PURCHASE PRICE.

 

(E)           SELLER WILL PROMPTLY AFTER THE CLOSING PREPARE AND FILE ALL TAX
RETURNS AND OTHER REPORTS REQUIRED BY LAW, RELATING TO THE OPERATION OF THE
BUSINESS THROUGH AND INCLUDING THE CLOSING DATE.

 

8.8          Employees and Employee Benefit Plans.

 

(A)           INFORMATION ON ACTIVE EMPLOYEES.  FOR THE PURPOSE OF THIS
AGREEMENT, THE TERM “ACTIVE EMPLOYEES” WILL MEAN ALL EMPLOYEES ACTIVELY EMPLOYED
IN GOOD STANDING ON THE CLOSING DATE BY SELLER PRIMARILY FOR THE OPERATION OF
THE BUSINESS AND LISTED AS “EMPLOYEES” ON SCHEDULE 6.16(A).

 

(B)           EMPLOYMENT OF ACTIVE EMPLOYEES BY BUYER.

 

(I)            BUYER SHALL MAKE QUALIFYING OFFERS TO ALL ACTIVE EMPLOYEES. 
BUYER WILL PROVIDE SELLER WITH A LIST OF ACTIVE EMPLOYEES TO WHOM BUYER HAS MADE
AN OFFER OF EMPLOYMENT THAT HAS BEEN ACCEPTED TO BE EFFECTIVE AS OF THE CLOSING
DATE (THE “HIRED ACTIVE EMPLOYEES”).  SELLER WILL PROVIDE BUYER WITH REASONABLE
ACCESS TO THE SELLER’S FACILITIES AND PERSONNEL RECORDS (INCLUDING PERFORMANCE
APPRAISALS, DISCIPLINARY ACTIONS, GRIEVANCES, AND MEDICAL RECORDS) FOR THE
PURPOSE OF PREPARING QUALIFYING OFFERS TO THE ACTIVE EMPLOYEES; PROVIDED,
HOWEVER, THAT SELLER SHALL PROVIDE SUCH ACCESS ONLY TO THOSE HUMAN RESOURCE
DESIGNEES OF THE BUYER WHO BUYER AGREES WILL ONLY REVEAL SUCH PERSONNEL
INFORMATION TO INDIVIDUALS WITH BUYER HAVING ACTUAL HIRING AUTHORITY OR WHO
PARTICIPATE DIRECTLY IN ACTUAL HIRING DECISIONS.  EFFECTIVE IMMEDIATELY BEFORE
THE CLOSING, SELLER WILL TERMINATE THE EMPLOYMENT OF ALL OF ITS ACTIVE
EMPLOYEES.  SELLER, WITH RESPECT TO THE ACTIVE EMPLOYEES, SHALL TIMELY GIVE ALL
NOTICES REQUIRED TO BE GIVEN UNDER THE WARN ACT OR SIMILAR STATUTES OR
REGULATION OF ANY JURISDICTION RELATING TO ANY PLANT CLOSING OR MASS LAY-OFF OR
AS OTHERWISE REQUIRED BY LAW.  NOTWITHSTANDING ANY OTHER PROVISION CONTAINED
HEREIN, SELLER AGREES TO FULLY INDEMNIFY BUYER FOR ANY AND ALL LIABILITY
INCURRED BY BUYER UNDER THE WARN ACT WITH RESPECT TO ACTIVE EMPLOYEES AS A
RESULT OF THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT.

 

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(II)           FOR A PERIOD OF NINETY (90) DAYS FOLLOWING THE CLOSING DATE,
BUYER MAY NOT TERMINATE THE EMPLOYMENT OF ANY HIRED ACTIVE EMPLOYEE, EXCEPT IN
THE CASE OF ANY SUCH TERMINATION FOR CAUSE.  FOLLOWING SUCH NINETY (90) DAY
PERIOD, EACH HIRED ACTIVE EMPLOYEE SHALL BE EMPLOYED AT WILL BY BUYER AS
EMPLOYEES OF BUYER (SUBJECT TO ANY APPLICABLE PROBATION PERIOD NOT PROHIBITED BY
LAW) TO OCCUPY POSITIONS DESIGNATED BY BUYER AND PURSUANT TO THE TERMS AND
CONDITIONS DETERMINED BY BUYER IN ITS SOLE DISCRETION.

 

(C)           SALARIES AND BENEFITS.

 

(I)            SELLER WILL BE RESPONSIBLE FOR (A) THE PAYMENT OF ALL WAGES AND
OTHER REMUNERATION LIABILITIES AND OBLIGATIONS DUE TO ACTIVE EMPLOYEES WITH
RESPECT TO THEIR SERVICES AS EMPLOYEES OF SELLER, INCLUDING PRO RATA BONUS
PAYMENTS AND ALL VACATION PAY EARNED PRIOR TO THE CLOSING DATE, (B) THE PAYMENT
OF ANY TERMINATION OR SEVERANCE PAYMENTS AND THE PROVISION OF HEALTH PLAN
CONTINUATION COVERAGE IN ACCORDANCE WITH THE REQUIREMENTS OF SECTIONS 601
THROUGH 608 OF ERISA, AND (C) ANY AND ALL PAYMENTS TO EMPLOYEES REQUIRED UNDER
THE WARN ACT.

 

(II)           SELLER WILL BE LIABLE FOR ANY CLAIMS MADE OR INCURRED BY ACTIVE
EMPLOYEES AND THEIR BENEFICIARIES THROUGH THE CLOSING DATE UNDER THE EMPLOYEE
BENEFIT PLANS.  FOR PURPOSES OF THE IMMEDIATELY PRECEDING SENTENCE, A CHARGE
WILL BE DEEMED INCURRED, IN THE CASE OF HOSPITAL, MEDICAL OR DENTAL BENEFITS
WHEN THE SERVICES THAT ARE THE SUBJECT OF THE CHARGE ARE PERFORMED AND, IN THE
CASE OF OTHER BENEFITS (SUCH AS DISABILITY OR LIFE INSURANCE), WHEN AN EVENT HAS
OCCURRED OR WHEN A CONDITION HAS BEEN DIAGNOSED THAT ENTITLES THE EMPLOYEE TO
THE BENEFIT.

 

(III)          BUYER ASSUMES NO OBLIGATION TO CONTINUE OR ASSUME ANY EMPLOYEE
BENEFIT PLANS, COMPENSATION ARRANGEMENTS OR LIABILITIES OF SELLER (INCLUDING,
BUT NOT WITHOUT BEING LIMITED TO, ANY SALARY, BONUSES, VACATION, SICK LEAVE,
FRINGE BENEFITS, INSURANCE PLANS, OR PENSION OR RETIREMENT BENEFITS UNDER ANY
COMPENSATION OR RETIREMENT PLAN OR POLICY MAINTAINED BY SELLER).

 

(D)           EMPLOYEE BENEFIT PLANS.  ALL HIRED ACTIVE EMPLOYEES WHO ARE
PARTICIPANTS IN SELLER’S EMPLOYEE BENEFIT PLANS WILL RETAIN THEIR ACCRUED
BENEFITS UNDER SUCH PLANS AS OF THE CLOSING DATE, AND SELLER WILL RETAIN SOLE
LIABILITY FOR THE PAYMENT OF SUCH BENEFITS AS AND WHEN SUCH HIRED ACTIVE
EMPLOYEES BECOME ELIGIBLE THEREFOR UNDER SUCH PLANS.  ALL HIRED ACTIVE EMPLOYEES
WILL BECOME FULLY VESTED IN THEIR ACCRUED BENEFITS UNDER SELLER’S EMPLOYEE
BENEFIT PLANS AS OF THE CLOSING DATE, AND SELLER WILL SO AMEND SUCH PLANS IF
NECESSARY TO ACHIEVE THIS RESULT.  NEITHER SELLER NOR ANY ERISA AFFILIATE OF
SELLER WILL MAKE ANY TRANSFER OF ANY EMPLOYEE BENEFIT PLAN ASSETS TO BUYER. 
SELLER ALSO AGREES TO RETAIN RESPONSIBILITY FOR MEDICAL AND DISABILITY PAYMENTS
TO EMPLOYEES ENGAGED PRIMARILY IN THE BUSINESS BUT ON MEDICAL OR DISABILITY
LEAVE AT THE CLOSING DATE UNTIL SUCH TIME AS SUCH EMPLOYEE IS, IF EVER, OFFERED
EMPLOYMENT BY BUYER, IN ITS SOLE DISCRETION, OR AS OTHERWISE REQUIRED UNDER
APPLICABLE LAW OR REGULATION.  ANY ACTIVE EMPLOYEE OR QUALIFIED BENEFICIARY
THEREOF AND WHO IS COVERED, OR WHO IS ELIGIBLE TO ELECT TO CONTINUE HIS OR HER
COVERAGE, AS OF OR FOLLOWING THE CLOSING DATE, UNDER ANY

 

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EMPLOYEE BENEFIT PLAN THAT CONSTITUTES A “GROUP HEALTH PLAN,” PURSUANT TO THE
PROVISION OF PART 6 OF TITLE I, SUBSTITUTE B OR ERISA OR SECTION 4980B OF THE
CODE, SHALL BE ELIGIBLE TO CONTINUE SUCH COVERAGE UNDER THE SELLER’S PLAN FOR
THE REMAINDER OF THE APPLICABLE CONTINUATION COVERAGE PERIOD AND SELLER SHALL
NOT TERMINATE ANY SUCH PLAN PRIOR TO THE END OF THE APPLICABLE COVERAGE PERIOD. 
SELLER AGREES TO INDEMNIFY BUYER FOR ALL LOSSES INCURRED BY BUYER OR BUYER’S
GROUP HEALTH PLAN RESULTING FROM ANY CLAIM FOR COBRA CONTINUATION COVERAGE MADE
BY OR ON BEHALF OF ANY CURRENT OR FORMER EMPLOYEE OF SELLER OR ITS ERISA
AFFILIATES OR A QUALIFIED BENEFICIARY OF SUCH AN EMPLOYEE UNDER ANY PLAN
MAINTAINED BY BUYER OR ITS AFFILIATES EXCEPT TO THE EXTENT THAT SUCH EMPLOYEE IS
A HIRED ACTIVE EMPLOYEE AND HAS BECOME AN ACTIVE PARTICIPANT IN BUYER’S “GROUP
HEALTH PLAN.”

 

(E)           GENERAL EMPLOYEE PROVISIONS.

 

(I)            SELLER WILL PROVIDE BUYER WITH COMPLETED I-9 FORMS AND
ATTACHMENTS WITH RESPECT TO ALL ACTIVE EMPLOYEES, EXCEPT FOR SUCH EMPLOYEES AS
SELLER CERTIFIES IN WRITING TO BUYER ARE EXEMPT FROM SUCH REQUIREMENT.  THE
PARTIES INTEND THAT THE BUYER QUALIFY AS A “SUCCESSOR EMPLOYER” FOR PURPOSES OF
RECEIVING CREDIT FOR THE PAYMENT OF TAXES UNDER THE FEDERAL INSURANCE
CONTRIBUTION ACT AND FEDERAL UNEMPLOYMENT TAX ACT BY SELLER WITH RESPECT TO THE
HIRED ACTIVE EMPLOYEES WITHIN THE MEANING OF SECTION 3121 AND 3306 OF THE CODE. 
ACCORDINGLY, THE PARTIES SHALL COOPERATE WITH EACH OTHER TO EFFECTUATE THE
FOREGOING.

 

(II)           BUYER WILL NOT HAVE ANY LIABILITY OR OBLIGATION, WHETHER TO
ACTIVE EMPLOYEES, FORMER EMPLOYEES, THEIR BENEFICIARIES OR ANY OTHER PERSON,
WITH RESPECT TO ANY EMPLOYEE BENEFIT PLANS, PRACTICES, PROGRAMS OR ARRANGEMENTS
(INCLUDING THE ESTABLISHMENT, OPERATION OR TERMINATION THEREOF AND THE
NOTIFICATION AND PROVISION OF COBRA COVERAGE EXTENSION) MAINTAINED, SPONSORED OR
CONTRIBUTED TO BY SELLER OR ANY ERISA AFFILIATE.

 

8.9          Payment of Non-Assumed Liabilities.

 

In addition to payment of Taxes pursuant to Section 8.7, Seller will timely pay,
or make adequate provision for the timely payment, in full of all Excluded
Liabilities.  If any such Excluded Liabilities are not so paid or provided for,
or if Buyer reasonably determines that failure to make any payments will impair
Buyer’s use or enjoyment of the Purchased Assets or conduct of the Business,
Buyer may, at any time after the Closing, elect to pay any or all of such
Excluded Liabilities directly (but will have no obligation to do so) and treat
such payment as damages under this Agreement so that Buyer will be entitled to
exercise the remedies available to it under ARTICLE 11 of this Agreement
(without regard to the limitations in Section 11.5).

 

8.10        No Liability.

 

Seller shall protect and indemnify Buyer from and Buyer shall not assume,
acquiesce, accede to or otherwise become Liable for or with respect to, any
Liabilities or obligations of any kind or nature of Seller or of the Business
which exist as of the Closing Date or arise from, accrue by reason of, or relate
in any material way to, any Contract, account, event or occurrence

 

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before the Closing Date.  Without limiting the generality of the foregoing,
Buyer shall have no Liability of any kind with respect to returns, warranty
claims, charge-backs product liability claims or other adjustments, charges or
claims with respect to goods or services sold or delivered by Seller or the
Business before the Closing Date.

 

8.11        UPDATED FINANCIAL STATEMENTS.

 

As soon as available and in any event within thirty (30) days after the end of
each month prior to the Closing Date, commencing with March 2006, the Seller
shall deliver to the Buyer a balance sheet and related statements of operations
and cash flows of the Business as of, and for the period then ended.  All such
financial statements shall be covered by and conform to the representations and
warranties set forth in Section 6.5 hereof and shall be included in the term
“Financial Statements” for purposes of this Agreement.

 

8.12        PREPARATION OF THE PROXY STATEMENT; STOCKHOLDER’S MEETING.

 

(a)           As soon as practicable following the date of this Agreement,
Innovo shall prepare and file with the Securities and Exchange Commission (the
“SEC”) the Proxy Statement.  Innovo shall use its Best Efforts to cause the
Proxy Statement to be mailed to its stockholders as promptly as practicable
after the filing of the Proxy Statement with the SEC.  The Proxy Statement shall
comply as to form in all material respects with the applicable provisions of the
Securities Exchange Act of 1934 and the rules and regulations thereunder. 
Innovo shall, as promptly as practicable after receipt thereof, provide Buyer
copies of any written comments and advise Buyer of any oral comments, with
respect to the Proxy Statement received from the SEC.  Innovo will provide Buyer
with a reasonable opportunity to review and comment on any amendment or
supplement to the Proxy Statement prior to filing such with the SEC, and will
provide Buyer with a copy of all such filings made with the SEC.  No filing of,
or amendment or supplement to, the Proxy Statement will be made by Innovo
without providing Buyer the opportunity to review and comment thereon.  If at
any time prior to the Closing any information relating to the Business, Seller
or Innovo or any of their respective Affiliates, officers or directors, should
be discovered by Innovo or Buyer which should be set forth in an amendment or
supplement to the Proxy Statement, so that such document would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the party which discovers such information shall promptly
notify the other parties hereto and an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC and, to the
extent required by law, disseminated to the stockholders of Innovo.

 

(b)           Innovo will, as soon as reasonably practicable, establish a record
date for, duly call, give notice of, convene and hold a meeting of its
stockholders (the “Stockholders’ Meeting”) for the purpose of obtaining the
Innovo stockholder approval and shall take all lawful action to solicit adoption
of this Agreement by its stockholders.  Innovo will, through its Board of
Directors, recommend to its stockholders adoption of this Agreement (the
“Company Recommendation”), and shall not withdraw, amend or modify in a manner
adverse to Buyer its recommendation.  Innovo shall ensure that the Stockholders’
Meeting is called, noticed, convened, held and conducted, and that all proxies
solicited in connection with the Stockholders’ Meeting are solicited, in
compliance with applicable Law.

 

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ARTICLE 9.
CLOSING CONDITIONS

 

9.1          Conditions Precedent to Obligations of Buyer.

 

Buyer’s obligation to consummate the purchase of the Purchased Assets and the
other transactions contemplated to occur in connection with the Closing is
subject to the satisfaction of each condition precedent listed below.  Unless
expressly waived pursuant to this Agreement, no representation, warranty,
covenant, right, or remedy available to Buyer in connection with the
Transactions contemplated hereby will be deemed waived by any of the following
actions or inactions by or on behalf of Buyer (regardless of whether Seller is
given notice of any such matter): (i) consummation by Buyer of the Transactions,
(ii) any inspection or investigation, if any, of the Purchased Assets, (iii) the
awareness of any fact or matter acquired (or capable or reasonably capable of
being acquired) with respect to the Purchased Assets or the Business, or (iv)
any other action, in each case at any time, whether before, on, or after the
Closing Date.

 

(A)           ACCURACY OF REPRESENTATIONS AND WARRANTIES.  EACH REPRESENTATION
AND WARRANTY SET FORTH IN ARTICLE 6 MUST HAVE BEEN ACCURATE AND COMPLETE IN ALL
MATERIAL RESPECTS (EXCEPT WITH RESPECT TO ANY PROVISIONS INCLUDING THE WORD
“MATERIAL” OR WORDS OF SIMILAR IMPORT, WITH RESPECT TO WHICH SUCH
REPRESENTATIONS AND WARRANTIES MUST HAVE BEEN ACCURATE AND COMPLETE) AS OF THE
EXECUTION DATE, AND MUST BE ACCURATE AND COMPLETE IN ALL MATERIAL RESPECTS
(EXCEPT WITH RESPECT TO ANY PROVISIONS INCLUDING THE WORD “MATERIAL” OR WORDS OF
SIMILAR IMPORT, WITH RESPECT TO WHICH SUCH REPRESENTATIONS AND WARRANTIES MUST
HAVE BEEN ACCURATE AND COMPLETE) AS OF THE CLOSING DATE, AS IF MADE ON THE
CLOSING DATE, WITHOUT GIVING EFFECT TO ANY SUPPLEMENTS TO THE SCHEDULES.

 

(B)           COMPLIANCE WITH OBLIGATIONS.           SELLER MUST HAVE PERFORMED
AND COMPLIED WITH ALL OF ITS COVENANTS TO BE PERFORMED OR COMPLIED WITH AT OR
PRIOR TO CLOSING (SINGULARLY AND IN THE AGGREGATE).

 

(C)           NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY.  SINCE
JANUARY 31, 2006, THERE MUST HAVE BEEN NO EVENT, SERIES OF EVENTS OR THE LACK OF
OCCURRENCE THEREOF WHICH, SINGULARLY OR IN THE AGGREGATE, COULD REASONABLY BE
EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON THE PURCHASED ASSETS OR THE
BUSINESS (INCLUDING AS PROPOSED TO BE CONDUCTED).  WITHOUT LIMITING THE
FOREGOING, (I) THERE MUST HAVE BEEN NO MATERIAL ADVERSE CHANGE TO THE PURCHASED
ASSETS OR THE BUSINESS (INCLUDING AS PROPOSED TO BE CONDUCTED), (II) THERE MUST
NOT HAVE BEEN ANY ACTION OR INACTION BY A GOVERNMENTAL BODY, ARBITRATOR, OR
MEDIATOR WHICH COULD REASONABLY BE EXPECTED TO CAUSE A MATERIAL ADVERSE CHANGE
TO THE PURCHASED ASSETS OR THE BUSINESS (INCLUDING AS PROPOSED TO BE CONDUCTED),
AND (III) THERE MUST NOT HAVE BEEN ANY FIRE, FLOOD, CASUALTY, ACT OF GOD OR THE
PUBLIC ENEMY OR OTHER CAUSE (REGARDLESS OF INSURANCE COVERAGE FOR SUCH DAMAGE)
WHICH EVENT COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON
THE PURCHASED ASSETS OR THE BUSINESS (INCLUDING AS PROPOSED TO BE CONDUCTED).

 

(D)           NO ADVERSE LITIGATION.  THERE MUST NOT BE PENDING OR THREATENED
ANY ACTION BY OR BEFORE ANY GOVERNMENTAL BODY, ARBITRATOR, OR MEDIATOR WHICH
SEEKS TO

 

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RESTRAIN, PROHIBIT, INVALIDATE, OR COLLECT DAMAGES ARISING OUT OF THE
TRANSACTIONS, OR WHICH, IN THE JUDGMENT OF BUYER, MAKES IT INADVISABLE TO
PROCEED WITH THE TRANSACTIONS.

 

(E)           CONSENTS.  SELLER AND BUYER MUST HAVE RECEIVED CONSENTS TO THE
TRANSACTIONS AND WAIVERS OF RIGHTS TO TERMINATE OR MODIFY ANY RIGHTS OR
OBLIGATIONS OF SELLER FROM ANY PERSON (I) FROM WHOM SUCH CONSENT IS REQUIRED,
INCLUDING UNDER ANY CONTRACT LISTED OR REQUIRED TO BE LISTED IN SCHEDULES 6.11,
6.12, AND 6.17 OR ANY LAW, OR (II) WHO, AS A RESULT OF THE TRANSACTIONS, WOULD
HAVE SUCH RIGHTS TO TERMINATE OR MODIFY SUCH CONTRACTS, EITHER BY THEIR TERMS OR
AS A MATTER OF LAW (THE “MATERIAL CONSENTS”).  SELLER AND BUYER MUST HAVE ALSO
RECEIVED THE CUSTOMER CONSENTS FROM SELLER’S TWO (2) LARGEST CUSTOMERS
IDENTIFIED ON SCHEDULE 6.19.  BUYER MUST HAVE RECEIVED THE CONSENT OF MILBERG
FACTORS.

 

(F)            RELEASE OF ENCUMBRANCES.  THERE MUST HAVE BEEN RECEIVED BY SELLER
AND BUYER RELEASES OF ALL ENCUMBRANCES ON THE PURCHASED ASSETS.

 

(G)           BUYER APPROVALS.  BUYER MUST HAVE RECEIVED ALL NECESSARY CORPORATE
AND SHAREHOLDER APPROVALS FOR BUYER’S ENTERING INTO THE TRANSACTIONS.

 

(H)           INNOVO SHAREHOLDER APPROVAL.  THE SHAREHOLDERS OF INNOVO SHALL
HAVE APPROVED THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY IN
ACCORDANCE WITH APPLICABLE LAW.

 

(I)            API RELEASE.  BUYER SHALL HAVE RECEIVED A RELEASE FROM API,
HUBERT GUEZ AND PAUL GUEZ RELEASING BUYER FROM ANY LIABILITY FOR THE RETAINED
LIABILITIES.

 

9.2          Conditions Precedent to Obligations of the Seller.

 

Seller’s obligation to consummate the sale of the Purchased Assets and the other
transactions contemplated to occur in connection with the Closing is subject to
the satisfaction of each condition precedent listed below.  Unless expressly
waived pursuant to this Agreement, no representation, warranty, covenant, right,
or remedy available to Seller in connection with the Transactions will be deemed
waived by any of the following actions or inactions by or on behalf of Seller
(regardless of whether Buyer is given notice of any such matter):  (i)
consummation by Seller of the Transactions, (ii) any inspection or
investigation, if any, of Buyer, (iii) the awareness of any fact or matter
acquired (or capable or reasonably capable of being acquired) with respect to
Buyer, or (iv) any other action, in each case at any time, whether before, on,
or after the Closing Date.

 

(A)           ACCURACY OF REPRESENTATIONS AND WARRANTIES.  EACH REPRESENTATION
AND WARRANTY SET FORTH IN ARTICLE 5 MUST HAVE BEEN ACCURATE AND COMPLETE IN ALL
MATERIAL RESPECTS (EXCEPT WITH RESPECT TO ANY PROVISIONS INCLUDING THE WORD
“MATERIAL” OR WORDS OF SIMILAR IMPORT, WITH RESPECT TO WHICH SUCH
REPRESENTATIONS AND WARRANTIES MUST HAVE BEEN ACCURATE AND COMPLETE) AS OF THE
EXECUTION DATE, AND MUST BE ACCURATE AND COMPLETE IN ALL MATERIAL RESPECTS
(EXCEPT WITH RESPECT TO ANY PROVISIONS INCLUDING THE WORD “MATERIAL” OR WORDS OF
SIMILAR IMPORT, WITH RESPECT TO WHICH SUCH REPRESENTATIONS AND WARRANTIES MUST
HAVE BEEN ACCURATE AND COMPLETE) AS OF THE CLOSING DATE, AS IF MADE ON THE
CLOSING DATE.

 

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(B)           COMPLIANCE WITH OBLIGATIONS.  BUYER MUST HAVE PERFORMED AND
COMPLIED WITH ALL ITS COVENANTS AND OBLIGATIONS REQUIRED BY THIS AGREEMENT TO BE
PERFORMED OR COMPLIED WITH AT OR PRIOR TO CLOSING (SINGULARLY AND IN THE
AGGREGATE).

 

(C)           SELLER APPROVALS. SELLER MUST HAVE RECEIVED ALL NECESSARY
CORPORATE AND SHAREHOLDER APPROVALS FOR SELLER’S ENTERING INTO THE TRANSACTIONS,
INCLUDING APPROVAL FROM INNOVO’S SHAREHOLDERS (“INNOVO SHAREHOLDER APPROVAL”),
IF REQUIRED.  SELLER AND INNOVO SHALL USE THEIR BEST EFFORTS TO OBTAIN SAID
APPROVAL, IF REQUIRED, BY MAY 9, 2006.

 

(D)           RELEASE OF SELLER AND INNOVO.            SELLER AND INNOVO MUST
HAVE RECEIVED FROM API AS APPLICABLE:

 

(I)            THE SELLER RELEASE FULLY RELEASING AND DISCHARGING SELLER AND
INNOVO OF AND FROM ALL OBLIGATIONS UNDER THE APA AND RELATED DOCUMENTS,
INCLUDING BUT NOT LIMITED TO THE AZTECA NOTE.

 

(II)           THE AZTECA NOTE MARKED “CANCELLED AND SATISFIED”.

 

(E)           NO ORDER OR INJUNCTION.  THERE MUST NOT BE ISSUED AND IN EFFECT
ANY ORDER RESTRAINING OR PROHIBITING THE TRANSACTIONS.

 

ARTICLE 10.
TERMINATION

 

10.1        Termination of Agreement.

 

The Parties may terminate this Agreement as provided below:

 

(A)           BUYER AND SELLER MAY TERMINATE THIS AGREEMENT AS TO ALL PARTIES BY
MUTUAL WRITTEN CONSENT AT ANY TIME PRIOR TO THE CLOSING.

 

(B)           BUYER OR SELLER MAY TERMINATE THIS AGREEMENT UPON DELIVERY OF
NOTICE IF THE CLOSING HAS NOT OCCURRED PRIOR TO THE EXPIRATION DATE, PROVIDED
THAT THE PARTY DELIVERING SUCH NOTICE WILL NOT HAVE CAUSED SUCH FAILURE TO CLOSE
(AND, IF THE PARTY DELIVERING SUCH NOTICE IS SELLER, INNOVO WILL NOT HAVE CAUSED
SUCH FAILURE TO CLOSE).

 

(C)           BUYER MAY TERMINATE THIS AGREEMENT BY GIVING WRITTEN NOTICE TO
SELLER AT ANY TIME PRIOR TO THE CLOSING IF SELLER HAS BREACHED ANY
REPRESENTATION, WARRANTY, OR COVENANT CONTAINED IN THIS AGREEMENT IN ANY
MATERIAL RESPECT (EXCEPT WITH RESPECT TO MATERIALITY FOR ANY PROVISIONS
INCLUDING THE WORD “MATERIAL” OR WORDS OF SIMILAR IMPORT, IN WHICH CASE SUCH
TERMINATION RIGHTS WILL ARISE UPON ANY BREACH).

 

(D)           SELLER MAY TERMINATE THIS AGREEMENT BY GIVING NOTICE TO BUYER AT
ANY TIME PRIOR TO THE CLOSING IF BUYER HAS BREACHED ANY REPRESENTATION,
WARRANTY, OR COVENANT CONTAINED IN THIS AGREEMENT IN ANY MATERIAL RESPECT
(EXCEPT WITH RESPECT TO MATERIALITY FOR ANY PROVISIONS INCLUDING THE WORD
“MATERIAL” OR WORDS OF SIMILAR IMPORT, IN WHICH CASE SUCH TERMINATION RIGHTS
WILL ARISE UPON ANY BREACH).

 

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(E)           BUYER MAY TERMINATE THIS AGREEMENT BY GIVING NOTICE TO SELLER ON
OR BEFORE THE EXPIRATION DATE IF BUYER IS NOT SATISFIED IN ITS SOLE DISCRETION
WITH THE RESULTS OF, AND ITS DUE DILIGENCE INVESTIGATIONS WITH RESPECT TO, THE
OPERATIONS, AFFAIRS, PROSPECTS, PROPERTIES, ASSETS, EXISTING AND POTENTIAL
LIABILITIES, OBLIGATIONS, PROFITS OR CONDITION (FINANCIAL OR OTHERWISE) OF THE
BUSINESS AND THE PURCHASED ASSETS.

 

10.2        Effect of Termination.

 

(A)           EXCEPT FOR THE OBLIGATIONS UNDER SECTION 7.8, THIS ARTICLE 10 AND
ARTICLE 12, IF THIS AGREEMENT IS TERMINATED UNDER SECTION 10.1, THEN, EXCEPT AS
PROVIDED IN THIS SECTION 10.2, ALL FURTHER OBLIGATIONS OF THE PARTIES UNDER THIS
AGREEMENT WILL TERMINATE.

 

(B)           IF BUYER OR SELLER TERMINATE THIS AGREEMENT PURSUANT TO SECTION
10.1(C) OR 10.1(D), AS THE CASE MAY BE, THEN THE RIGHTS OF THE NON-BREACHING
PARTY TO PURSUE ALL LEGAL REMEDIES FOR DAMAGES SUCH PARTY SUFFER WILL SURVIVE
SUCH TERMINATION UNIMPAIRED AND NO ELECTION OF REMEDIES WILL HAVE BEEN DEEMED TO
HAVE BEEN MADE.

 

ARTICLE 11.
INDEMNIFICATION

 

11.1        Survival of Representations and Warranties.

 

(A)           EACH REPRESENTATION AND WARRANTY OF SELLER CONTAINED IN ARTICLE 6
AND ANY CERTIFICATE RELATED TO SUCH REPRESENTATIONS AND WARRANTIES WILL SURVIVE
THE CLOSING AND CONTINUE IN FULL FORCE AND EFFECT FOR THREE (3) YEARS
THEREAFTER, EXCEPT (I) THE REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTIONS
6.4, 6.9, 6.17, AND 6.18, WHICH WILL SURVIVE THE CLOSING AND CONTINUE IN FULL
FORCE AND EFFECT UNTIL THE APPLICABLE STATUTE OF LIMITATIONS EXPIRES (OR FOR
THREE (3) YEARS IF THERE IS NO APPLICABLE STATUTE OF LIMITATIONS) AND (II) THE
REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTIONS 6.1 AND 6.2, WHICH WILL
SURVIVE THE CLOSING AND WILL CONTINUE IN FULL FORCE AND EFFECT FOREVER.

 

(B)           EACH REPRESENTATION AND WARRANTY OF BUYER CONTAINED IN ARTICLE 5
AND ANY CERTIFICATE RELATED TO SUCH REPRESENTATIONS AND WARRANTIES WILL SURVIVE
THE CLOSING AND CONTINUE IN FULL FORCE AND EFFECT FOR THREE (3) YEARS
THEREAFTER, EXCEPT THE REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTIONS 5.1
AND 5.2, WHICH WILL SURVIVE THE CLOSING AND WILL CONTINUE IN FULL FORCE AND
EFFECT FOREVER.

 

(C)           EACH OTHER PROVISION IN THIS AGREEMENT OR ANY CERTIFICATE OR
DOCUMENT DELIVERED PURSUANT HERETO WILL SURVIVE FOR THE RELEVANT STATUTE OF
LIMITATIONS PERIOD, UNLESS A DIFFERENT PERIOD IS EXPRESSLY CONTEMPLATED HEREIN
OR THEREBY.

 

11.2        Indemnification Provisions for Buyer’s Benefit.

 

Seller will indemnify and hold Indemnified Buyer Parties harmless from and pay
any and all damages, directly or indirectly, resulting from, relating to,
arising out of, or attributable to any one of the following:

 

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(A)           ANY BREACH OF ANY REPRESENTATION OR WARRANTY SELLER HAS MADE IN
THIS AGREEMENT AS IF SUCH REPRESENTATION OR WARRANTY WERE MADE ON AND AS OF THE
CLOSING DATE WITHOUT GIVING EFFECT TO ANY SUPPLEMENT TO THE SCHEDULES AND
WITHOUT GIVING REGARD TO ANY MATERIALITY QUALIFIER CONTAINED IN SUCH
REPRESENTATION OR WARRANTY.

 

(B)           ANY BREACH BY SELLER OF ANY COVENANT OR OBLIGATION OF SELLER OR
INNOVO IN THIS AGREEMENT.

 

(C)           ANY EVENT ARISING FROM THE OPERATION OR OWNERSHIP OF, OR
CONDITIONS OCCURRING WITH RESPECT TO, THE BUSINESS OR ANY OF THE PURCHASED
ASSETS PRIOR TO 11:59 P.M.  ON THE CLOSING DATE.

 

(D)           ANY EXCLUDED LIABILITY.

 

(E)           EXCEPT AS PROVIDED IN SECTION 8.7(B), ANY LIABILITY OR OBLIGATION
FOR TAXES, WHETHER OR NOT ACCRUED, ASSESSED OR CURRENTLY DUE AND PAYABLE, (I) OF
THE SELLER, WHETHER OR NOT THEY RELATE TO THE BUSINESS, (II) ARISING FROM THE
OPERATION OF THE BUSINESS OR THE OWNERSHIP OF THE PURCHASED ASSETS FOR ANY TAX
PERIOD (OR PORTION THEREOF) ENDING ON OR PRIOR TO THE CLOSING DATE OR (III)
ARISING OUT OF THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY.

 

11.3        Indemnification Provisions for Seller’s Benefit.

 

Buyer will indemnify and hold Seller harmless from and pay any and all damages,
directly or indirectly, resulting from, relating to, arising out of, or
attributable to any of the following:

 

(A)           ANY BREACH OF ANY REPRESENTATION OR WARRANTY BUYER HAS MADE IN
THIS AGREEMENT AS IF SUCH REPRESENTATION OR WARRANTY WERE MADE ON AND AS OF THE
CLOSING DATE WITHOUT GIVING EFFECT TO ANY SUPPLEMENT TO THE SCHEDULES AND
WITHOUT GIVING REGARD TO ANY MATERIALITY QUALIFIER CONTAINED IN SUCH
REPRESENTATION OR WARRANTY.

 

(B)           ANY BREACH BY BUYER OF ANY COVENANT OR OBLIGATION OF BUYER IN THIS
AGREEMENT.

 

(C)           ANY EVENT ARISING FROM THE OPERATION AND OWNERSHIP OF, OR
CONDITIONS FIRST OCCURRING WITH RESPECT TO, THE BUSINESS OR ANY OF THE PURCHASED
ASSETS AFTER 11:59 P.M. ON THE CLOSING DATE.

 

(D)           ANY ASSUMED LIABILITY.

 

11.4        Indemnification Claim Procedures.

 

(A)           IF ANY ACTION IS COMMENCED IN WHICH ANY INDEMNIFIED PARTY IS A
PARTY THAT MAY GIVE RISE TO A CLAIM FOR INDEMNIFICATION AGAINST ANY INDEMNITOR
(AN “INDEMNIFICATION CLAIM”) THEN SUCH INDEMNIFIED PARTY WILL PROMPTLY GIVE
NOTICE TO THE INDEMNITOR.  FAILURE TO NOTIFY THE INDEMNITOR WILL NOT RELIEVE THE
INDEMNITOR OF ANY LIABILITY THAT IT MAY HAVE

 

36

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TO THE INDEMNIFIED PARTY, EXCEPT TO THE EXTENT THE DEFENSE OF SUCH ACTION IS
MATERIALLY AND IRREVOCABLY PREJUDICED BY THE INDEMNIFIED PARTY’S FAILURE TO GIVE
SUCH NOTICE.

 

(B)           AN INDEMNITOR WILL HAVE THE RIGHT TO DEFEND AGAINST AN
INDEMNIFICATION CLAIM, OTHER THAN A INDEMNIFICATION CLAIM RELATED TO TAXES, WITH
COUNSEL OF ITS CHOICE REASONABLY SATISFACTORY TO THE INDEMNIFIED PARTY IF (I)
WITHIN 15 DAYS FOLLOWING THE RECEIPT OF NOTICE OF THE INDEMNIFICATION CLAIM THE
INDEMNITOR NOTIFIES THE INDEMNIFIED PARTY IN WRITING THAT THE INDEMNITOR WILL
INDEMNIFY THE INDEMNIFIED PARTY FROM AND AGAINST THE ENTIRETY OF ANY DAMAGES THE
INDEMNIFIED PARTY MAY SUFFER RESULTING FROM, RELATING TO, ARISING OUT OF, OR
ATTRIBUTABLE TO THE INDEMNIFICATION CLAIM, (II) THE INDEMNITOR PROVIDES THE
INDEMNIFIED PARTY WITH EVIDENCE REASONABLY ACCEPTABLE TO THE INDEMNIFIED PARTY
THAT THE INDEMNITOR WILL HAVE THE FINANCIAL RESOURCES TO DEFEND AGAINST THE
INDEMNIFICATION CLAIM AND PAY, IN CASH, ALL DAMAGES THE INDEMNIFIED PARTY MAY
SUFFER RESULTING FROM, RELATING TO, ARISING OUT OF, OR ATTRIBUTABLE TO THE
INDEMNIFICATION CLAIM, (III) THE INDEMNIFICATION CLAIM INVOLVES ONLY MONEY
DAMAGES AND DOES NOT SEEK AN INJUNCTION OR OTHER EQUITABLE RELIEF, (IV)
SETTLEMENT OF, OR AN ADVERSE JUDGMENT WITH RESPECT TO, THE INDEMNIFICATION CLAIM
IS NOT IN THE GOOD FAITH JUDGMENT OF THE INDEMNIFIED PARTY LIKELY TO ESTABLISH A
PRECEDENTIAL CUSTOM OR PRACTICE MATERIALLY ADVERSE TO THE CONTINUING BUSINESS
INTERESTS OF THE INDEMNIFIED PARTY, AND (V) THE INDEMNITOR CONTINUOUSLY CONDUCTS
THE DEFENSE OF THE INDEMNIFICATION CLAIM ACTIVELY AND DILIGENTLY.

 

(C)           SO LONG AS THE INDEMNITOR IS CONDUCTING THE DEFENSE OF THE
INDEMNIFICATION CLAIM IN ACCORDANCE WITH SECTION 11.4(B), (I) THE INDEMNIFIED
PARTY MAY RETAIN SEPARATE CO-COUNSEL AT ITS SOLE COST AND EXPENSE AND
PARTICIPATE IN THE DEFENSE OF THE INDEMNIFICATION CLAIM, (II) THE INDEMNIFIED
PARTY WILL NOT CONSENT TO THE ENTRY OF ANY ORDER WITH RESPECT TO THE
INDEMNIFICATION CLAIM WITHOUT THE PRIOR WRITTEN CONSENT OF THE INDEMNITOR (NOT
TO BE WITHHELD UNREASONABLY), AND (III) THE INDEMNITOR WILL NOT CONSENT TO THE
ENTRY OF ANY ORDER WITH RESPECT TO THE INDEMNIFICATION CLAIM WITHOUT THE PRIOR
WRITTEN CONSENT OF THE INDEMNIFIED PARTY (NOT TO BE WITHHELD UNREASONABLY,
PROVIDED THAT IT WILL NOT BE DEEMED TO BE UNREASONABLE FOR AN INDEMNIFIED PARTY
TO WITHHOLD ITS CONSENT (A) WITH RESPECT TO ANY FINDING OF OR ADMISSION (1) OF
ANY BREACH OF ANY LAW, ORDER OR PERMIT, (2) OF ANY VIOLATION OF THE RIGHTS OF
ANY PERSON, OR (3) WHICH INDEMNIFIED PARTY BELIEVES COULD HAVE A MATERIAL
ADVERSE EFFECT ON ANY OTHER ACTIONS TO WHICH THE INDEMNIFIED PARTY OR ITS
AFFILIATES ARE PARTY OR TO WHICH INDEMNIFIED PARTY HAS A GOOD FAITH BELIEF IT
MAY BECOME PARTY, OR (B) IF ANY PORTION OF SUCH ORDER WOULD NOT REMAIN SEALED).

 

(D)           IN CONNECTION WITH ANY INDEMNIFICATION CLAIM FOR TAXES, OR IF ANY
CONDITION IN SECTION 11.4(B) IS OR BECOMES UNSATISFIED, (I) THE INDEMNIFIED
PARTY MAY DEFEND AGAINST, AND CONSENT TO THE ENTRY OF ANY ORDER WITH RESPECT TO
AN INDEMNIFICATION CLAIM IN ANY MANNER IT MAY DEEM APPROPRIATE (AND THE
INDEMNIFIED PARTY NEED NOT CONSULT WITH, OR OBTAIN ANY CONSENT FROM, ANY
INDEMNITOR IN CONNECTION THEREWITH), (II) EACH INDEMNITOR WILL JOINTLY AND
SEVERALLY BE OBLIGATED TO REIMBURSE THE INDEMNIFIED PARTY PROMPTLY AND
PERIODICALLY FOR THE DAMAGES RELATING TO DEFENDING AGAINST THE INDEMNIFICATION
CLAIM, AND (III) EACH INDEMNITOR WILL REMAIN JOINTLY AND SEVERALLY LIABLE FOR
ANY DAMAGES THE INDEMNIFIED PARTY MAY SUFFER RELATING TO THE INDEMNIFICATION
CLAIM TO THE FULLEST EXTENT PROVIDED IN THIS ARTICLE 11.

 

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(E)           EACH PARTY HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF
ANY GOVERNMENTAL BODY, ARBITRATOR, OR MEDIATOR IN WHICH AN ACTION IS BROUGHT
AGAINST ANY INDEMNIFIED PARTY FOR PURPOSES OF ANY INDEMNIFICATION CLAIM THAT AN
INDEMNIFIED PARTY MAY HAVE UNDER THIS AGREEMENT WITH RESPECT TO SUCH ACTION OR
THE MATTERS ALLEGED THEREIN, AND AGREES THAT PROCESS MAY BE SERVED ON SUCH PARTY
WITH RESPECT TO SUCH CLAIM ANYWHERE IN THE WORLD.

 

11.5        Limitations on Indemnification Liability.

 

(A)           WITH RESPECT TO CLAIMS BY THE INDEMNIFIED BUYER PARTIES.  SELLER’S
AGGREGATE LIABILITY FOR MONEY DAMAGES UNDER THIS AGREEMENT RELATED TO BREACHES
OF THE REPRESENTATIONS AND WARRANTIES HEREIN WILL NOT EXCEED AN AMOUNT EQUAL TO
THE LESSER OF: (I)  $2,000,000 OR (II) TWENTY PERCENT (20%) OF THE PURCHASE
PRICE AFTER ANY APPLICABLE ADJUSTMENTS PURSUANT TO SECTION 3.1(B) HEREINABOVE;
PROVIDED, HOWEVER, THAT THE LIMITATION CONTEMPLATED HEREBY WILL NOT BE
APPLICABLE WITH RESPECT TO BREACHES OF SECTIONS 6.1 AND 6.2 OR INSTANCES OF
FRAUD BY A SELLER.

 

(B)           WITH RESPECT TO CLAIMS BY THE INDEMNIFIED SELLER.  BUYER’S
AGGREGATE LIABILITY FOR MONEY DAMAGES UNDER THIS AGREEMENT RELATED TO BREACHES
OF THE REPRESENTATIONS AND WARRANTIES HEREIN WILL NOT EXCEED AN AMOUNT EQUAL TO
THE LESSER OF: (I)  $2,000,000 OR (II) TWENTY PERCENT (20%) OF THE PURCHASE
PRICE AFTER ANY APPLICABLE ADJUSTMENTS PURSUANT TO SECTION 3.1(B) HEREINABOVE;
PROVIDED, HOWEVER, THAT THE LIMITATION CONTEMPLATED HEREBY WILL NOT BE
APPLICABLE WITH RESPECT TO BREACHES OF SECTIONS 5.1 AND 5.2 OR INSTANCES OF
FRAUD BY BUYER.

 

(C)           WITH RESPECT TO CLAIMS BY ANY INDEMNIFIED PARTY.  ANY CLAIMS ANY
INDEMNIFIED PARTY MAKES UNDER THIS ARTICLE 11 WILL BE LIMITED AS FOLLOWS:

 

(I)            EXCLUSION OF CERTAIN TYPES OF DAMAGES.  ALL INDEMNIFICATION
OBLIGATIONS WILL BE LIMITED TO ACTUAL DAMAGES AND WILL EXCLUDE INCIDENTAL,
CONSEQUENTIAL, LOST PROFITS, INDIRECT, PUNITIVE, OR EXEMPLARY DAMAGES, EXCEPT TO
THE EXTENT THE INDEMNIFIED PARTY IS REQUIRED TO PAY SUCH TYPES OF DAMAGES TO
THIRD PARTIES.

 

(II)           KNOWLEDGE QUALIFIERS.  IN DETERMINING WHETHER A REPRESENTATION,
WARRANTY, OR COVENANT IN THIS AGREEMENT HAS BEEN BREACHED WHERE SUCH COVENANT IS
MODIFIED BY THE CONCEPT OF “KNOWLEDGE,” SUCH CONCEPT WILL BE DISREGARDED IN
DETERMINING WHETHER THERE HAS BEEN A BREACH OF SUCH REPRESENTATION, WARRANTY, OR
COVENANT.

 

11.6        Intentionally Omitted.

 

11.7        No Waiver of Rights or Remedies.

 

Each Indemnified Party’s rights and remedies set forth in this Agreement will
survive the Closing and will not be deemed waived by such Indemnified Party’s
consummation of the Transactions and will be effective regardless of any
inspection or investigation conducted, or the awareness of any matters acquired
(or capable or reasonably capable of being acquired), by or on

 

38

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behalf of such Indemnified Party or by its directors, officers, employees, or
representatives or at any time (regardless of whether notice of such knowledge
has been given to Indemnitor), whether before or after the Execution Date or the
Closing Date with respect to any circumstances constituting a condition under
this Agreement, unless any waiver specifically so states.

 

11.8        Other Indemnification Provisions.

 

(A)           THE FOREGOING INDEMNIFICATION PROVISIONS ARE IN ADDITION TO, AND
NOT IN DEROGATION OF, ANY REMEDY AT LAW OR IN EQUITY THAT ANY PARTY MAY HAVE
WITH RESPECT TO THE TRANSACTIONS.

 

(B)           A CLAIM FOR ANY MATTER NOT INVOLVING A THIRD PARTY MAY BE ASSERTED
BY NOTICE TO THE PARTY FROM WHOM INDEMNIFICATION IS SOUGHT.

 

ARTICLE 12.
MISCELLANEOUS

 

12.1        Schedules.

 

(A)           THE DISCLOSURES IN ANY SCHEDULE, AND THOSE IN ANY SUPPLEMENT
THERETO, RELATE ONLY TO THE REPRESENTATIONS AND WARRANTIES IN THE SECTION OR
PARAGRAPH OF THE AGREEMENT TO WHICH SUCH SCHEDULE EXPRESSLY RELATES AND NOT TO
ANY OTHER REPRESENTATION OR WARRANTY IN THIS AGREEMENT.

 

(B)           IF THERE IS ANY INCONSISTENCY BETWEEN THE STATEMENTS IN THE BODY
OF THIS AGREEMENT AND THOSE IN THE SCHEDULES (OTHER THAN AN EXCEPTION EXPRESSLY
SET FORTH AS IN THE SCHEDULES WITH RESPECT TO A SPECIFICALLY IDENTIFIED
REPRESENTATION OR WARRANTY), THE STATEMENTS IN THE BODY OF THIS AGREEMENT WILL
CONTROL.

 

(C)           NOTHING IN THE SCHEDULES WILL BE DEEMED ADEQUATE TO DISCLOSE AN
EXCEPTION TO A REPRESENTATION OR WARRANTY MADE HEREIN, UNLESS THE SCHEDULES
IDENTIFY THE EXCEPTION WITH PARTICULARITY AND DESCRIBES THE RELEVANT FACTS IN
REASONABLE DETAIL.

 

(D)           THE MERE LISTING (OR INCLUSION OF A COPY) OF A DOCUMENT OR OTHER
ITEM IN A SCHEDULE WILL NOT BE DEEMED ADEQUATE TO DISCLOSE AN EXCEPTION TO A
REPRESENTATION OR WARRANTY MADE IN THIS AGREEMENT (UNLESS THE REPRESENTATION OR
WARRANTY PERTAINS TO THE EXISTENCE OF THE DOCUMENT OR OTHER ITEM ITSELF).

 

12.2        Entire Agreement.

 

This Agreement, together with the Exhibits and Schedules hereto and the
certificates, documents, instruments and writings that are delivered pursuant
hereto, constitutes the entire agreement and understanding of the Parties in
respect of its subject matters and supersedes all prior understandings,
agreements, or representations by or among the Parties, written or oral, to the
extent they relate in any way to the subject matter hereof or the Transactions,
including the letter of intent, dated March 3, 2006, between Seller and Buyer. 
Except as expressly contemplated by ARTICLE 11, there are no third party
beneficiaries having rights under or with respect to this Agreement.

 

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12.3        Successors.

 

All of the terms, agreements, covenants, representations, warranties, and
conditions of this Agreement are binding upon, and inure to the benefit of and
are enforceable by, the Parties and their respective successors and, to the
extent of any assignment permitted under Section 12.4, the assigns of Buyer.

 

12.4        Assignments.

 

No Party may assign either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of Buyer and Seller;
provided, however, that Buyer may (a) assign any or all of its rights and
interests hereunder to one or more of its Affiliates and (b) designate one or
more of its Affiliates to perform its obligations hereunder (in any or all of
which cases Buyer nonetheless will remain responsible for the performance of all
of its obligations hereunder), (c) make a collateral assignment of its rights
hereunder to its lender(s) and (d) in connection with any sale or transfer by
Buyer of all or substantially all of its assets to another Person, (i) Buyer
may, by written notice to Seller, assign any or all of its rights and interests
under this Agreement to such other Person; and (ii) to the extent such other
Person expressly assumes by a written instrument any or all of the obligations
of Buyer under this Agreement, Buyer shall be discharged and released from such
obligations so assumed.  In the event of an assignment or designation pursuant
to clauses (a) or (b) or (d) of the prior sentence prior to the Closing Date,
any documents to be delivered by Seller or Buyer pursuant hereto the forms of
which are attached hereto shall be appropriately modified to give effect to such
assignment or designation.

 

12.5        Notices.

 

All notices, requests, demands, claims, and other communications hereunder will
be in writing.  Any notice, request, demand, claim, or other communication
hereunder will be deemed duly given if (and then three business days after) it
is sent by registered or certified mail, return receipt requested, postage
prepaid, and addressed to the intended recipient as set forth below:

 

If to Buyer:

 

 

 

Cygne Designs, Inc.

 

11 West 42nd Street

 

New York, New York 10036

 

Attn: Chief Executive Officer

 

 

 

Copy to (which will not constitute notice):

 

 

 

Fulbright & Jaworski L.L.P.

 

666 Fifth Avenue

 

New York, New York 10103

 

Attn: Paul Jacobs, Esq.

 

 

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If to Seller:

 

 

 

Marc Crossman

 

c/o Innovo Group, Inc.

 

5900 S. Eastern Ave., Suite 104

 

Commerce, CA 90040

 

Tel:

(323) 725-5516

 

Fax:

(865) 546-9277

 

 

 

Copy to (which will not constitute notice):

 

 

 

Christopher R. Maddux

 

Phelps Dunbar LLP

 

111 E. Capitol Street, Suite 600

 

Jackson, MS 39201-2122

 

Tel:

(601) 352-2300

 

Fax:

(601) 360-9777

 

 

Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication will be deemed to have been duly
given unless and until it actually is received by the intended recipient.  Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.

 

12.6        Specific Performance.

 

Each Party acknowledges and agrees that the other Parties would be damaged
irreparably if any provision of this Agreement is not performed in accordance
with its specific terms or is otherwise Breached.  Accordingly, each Party
agrees that the other Parties will be entitled to an injunction or injunctions
to prevent Breaches of the provisions of this Agreement and to enforce
specifically this Agreement and its terms and provisions in any Action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, subject to Sections 12.7 and
12.11, in addition to any other remedy to which they may be entitled, at law or
in equity.

 

12.7        Submission to Jurisdiction; Process Agent; No Jury Trial.

 

(A)           SUBMISSION TO JURISDICTION.  EACH PARTY SUBMITS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN LOS ANGELES, CALIFORNIA,
IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT AND AGREES THAT ALL
CLAIMS IN RESPECT OF THE ACTION MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. 
NOTHING IN THIS SECTION 12.7(A) WILL AFFECT THE RIGHT OF ANY PARTY TO BRING ANY
ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY OTHER COURT.  EACH
PARTY AGREES THAT A FINAL JUDGMENT IN ANY ACTION SO BROUGHT WILL BE CONCLUSIVE
AND MAY BE ENFORCED BY ACTION ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED AT
LAW OR

 

41

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IN EQUITY.  EACH PARTY WAIVES ANY DEFENSE OF INCONVENIENT FORUM TO THE
MAINTENANCE OF ANY ACTION SO BROUGHT AND WAIVES ANY BOND, SURETY, OR OTHER
SECURITY THAT MIGHT BE REQUIRED OF ANY OTHER PARTY WITH RESPECT THERETO.

 

(B)           WAIVER OF JURY TRIAL.  THE PARTIES EACH HEREBY AGREE TO WAIVE
THEIR RESPECTIVE RIGHTS TO JURY TRIAL OF ANY DISPUTE BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OTHER AGREEMENTS RELATING HERETO OR ANY DEALINGS AMONG
THEM RELATING TO THE TRANSACTIONS.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL ENCOMPASSING OF ANY AND ALL ACTIONS THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THE TRANSACTIONS, INCLUDING, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS.  THE PARTIES EACH ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT
TO ENTER INTO A BUSINESS RELATIONSHIP AND THAT THEY WILL CONTINUE TO RELY ON THE
WAIVER IN THEIR RELATED FUTURE DEALINGS.  EACH PARTY FURTHER REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.  NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THIS
WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED ORALLY OR IN WRITING,
AND THE WAIVER WILL APPLY TO ANY AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING
HERETO.  IN THE EVENT OF AN ACTION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO TRIAL BY A COURT.

 

(C)           SERVICE OF PROCESS.  THE PARTIES AGREE THAT ANY PARTY MAY MAKE
SERVICE ON ANY OTHER PARTY BY SENDING OR DELIVERING A COPY OF THE PROCESS TO THE
PARTY TO BE SERVED AT THE ADDRESS AND IN THE MANNER PROVIDED FOR THE GIVING OF
NOTICES IN SECTION 12.5.  NOTHING IN THIS SECTION 12.7(C) WILL AFFECT ANY
PARTY’S RIGHT TO BRING ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT
IN ANY OTHER COURT OR TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED AT
LAW OR IN EQUITY.

 

12.8        Time.

 

Time is of the essence in the performance of this Agreement.

 

12.9        Counterparts.

 

This Agreement may be executed in two or more counterparts, each of which will
be deemed an original but all of which together will constitute one and the same
instrument.

 

12.10      Headings.

 

The article and section headings contained in this Agreement are inserted for
convenience only and will not affect in any way the meaning or interpretation of
this Agreement.

 

12.11      Governing Law.

 

This Agreement and the performance of the Transactions and obligations of the
Parties hereunder will be governed by and construed in accordance with the laws
of the State of Delaware, without giving effect to any choice of Law principles
that may require application of any other Laws.

 

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12.12      Amendments and Waivers.

 

No amendment, modification, waiver, replacement, termination or cancellation of
any provision of this Agreement will be valid, unless the same will be in
writing and signed by Buyer and Seller.  No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, may be deemed to extend to any prior or subsequent default,
misrepresentation, or Breach of warranty or covenant hereunder or affect in any
way any rights arising because of any prior or subsequent such occurrence.

 

12.13      Severability.

 

The provisions of this Agreement will be deemed severable and the invalidity or
unenforceability of any provision will not affect the validity or enforceability
of the other provisions hereof; provided that if any provision of this
Agreement, as applied to any Party or to any circumstance, is adjudged by a
Governmental Body, arbitrator, or mediator not to be enforceable in accordance
with its terms, the Parties agree that the Governmental Body, arbitrator, or
mediator making such determination will have the power to modify the provision
in a manner consistent with its objectives such that it is enforceable, and/or
to delete specific words or phrases, and in its reduced form, such provision
will then be enforceable and will be enforced.  The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.

 

12.14      Expenses.

 

Except as otherwise expressly provided in this Agreement, Seller, on the one
hand, and the Buyer, on the other hand, will each bear its own costs and
expenses incurred in connection with the preparation, execution and performance
of this Agreement and the Transactions including all fees and expenses of
agents, representatives, financial advisors, legal counsel and accountants.

 

12.15      Construction.

 

The Parties have participated jointly in the negotiation and drafting of this
Agreement.  If an ambiguity or question of intent or interpretation arises, this
Agreement will be construed as if drafted jointly by the Parties and no
presumption or burden of proof will arise favoring or disfavoring any Party
because of the authorship of any provision of this Agreement.  Any reference to
any federal, state, local, or foreign Law will be deemed also to refer to Law as
amended and all rules and regulations promulgated thereunder, unless the context
requires otherwise.  The words “include,” “includes,” and “including” will be
deemed to be followed by “without limitation.” Pronouns in masculine, feminine,
and neuter genders will be construed to include any other gender, and words in
the singular form will be construed to include the plural and vice versa, unless
the context otherwise requires.  The words “this Agreement,” “herein,” “hereof,”
“hereby,” “hereunder,” and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited.  The
Parties intend that each representation, warranty, covenant, and condition
contained herein will have independent significance.  If any Party has breached
any representation, warranty, or covenant contained

 

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herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same or similar subject matter (regardless
of the relative levels of specificity) which the Party has not breached will not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.  If any condition to Closing contained
herein has not been satisfied in any respect, the fact that there exists another
condition relating to the same or similar subject matter (regardless of the
relative levels of specificity) which has been satisfied shall not detract from
or mitigate the fact that the first condition has not been satisfied.

 

12.16      Incorporation of Exhibits and Schedules.

 

The Exhibits, Schedules, and other attachments identified in this Agreement are
incorporated herein by reference and made a part hereof.

 

12.17      Remedies.

 

Except as expressly provided herein, the rights, obligations and remedies
created by this Agreement are cumulative and in addition to any other rights,
obligations, or remedies otherwise available at law or in equity.  Except as
expressly provided herein, nothing herein will be considered an election of
remedies.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
on the day and year first above written.

 

 

SELLER

 

 

 

INNOVO AZTECA APPAREL, INC.

 

 

 

 

 

By

/s/ Marc Crossman

 

 

Name: Marc Crossman

 

Title: President

 

 

 

 

 

BUYER

 

 

 

CYGNE DESIGNS, INC.

 

 

 

 

 

By

/s/ Bernard Manuel

 

 

Name: Bernard Manuel

 

Title: Chief Executive Officer

 

 

 

 

 

INNOVO

 

 

 

INNOVO GROUP INC.

 

 

 

 

 

By

/s/ Marc Crossman

 

 

Name: Marc Crossman

 

Title: Interim CEO, President and CFO

 

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SCHEDULE 1.1

 

Purchased Assets

 

(1)

Customer List

 

 

 

 

 

 

•

American Eagle Outfitters, Inc.

 

 

•

Target Corporation

 

 

 

(2)

Employees — See Schedule 6.16 (a)

 

 

 

(3)

Purchase Orders — See Schedule 2.2(e)

 

 

(4)

Inventory — See Schedule 2.2 (f)

 

 

(5)

Non-Compete — See Exhibit C - Assumption and Assignment Agreement

 

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SCHEDULE 2.2

 

Assumed Liabilities

(a)           IAA’s outstanding obligations under that certain Promissory Note
dated July 17, 2003 given by IAA in favor of API in the aggregate principal
amount of $7,936,654.71 true and correct copy of which is attached hereto as
Exhibit B, with said Azteca Note having been cancelled and replaced by a new
promissory note by Cygne to API of even date herewith in the aggregate principal
amount of $7,936,654.71;

 

(b)           All obligations of IAA under the Buyer Earn Out provision
contained in Section 8.11 of the 2003 APA and Sections 8.11(a), 8.11(b) and
8.11(c) thereto.

 

(c)           All liabilities of Seller to API (other than the Azteca Note) in
excess of $1,500,000.

 

(e)           All outstanding Purchase Orders listed on Schedule 2.2(e).

 

(f)            All Inventory listed on Schedule 2.2(f).

 

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